Two staff accountants, Michael and Anthony, are having a lively discussion about various costing procedures that are currently in place at the factory where they are employed. The production department has asked the accountants to determine the most effective way in which they can allocate their department costs. The production department has a total Manufacturing Overhead (MOH) cost of $3,660,500. Michael and Anthony have gathered the following cost driver information:
Budgeted machine setups 50,460 setups ($1,000,000)
Budgeted pounds of indirect material 124,800 pounds ($2,660,500)
A recent production run used 400 machine setups and 2,380 pounds of indirect material. How much of the department's MOH cost will be allocated for the most recent run for the unit-level activity? (If required, round calculations to two decimal places.)
A) $49,718.20
B) $50,741.60
C) $2,660,500.00
D) $3,660,500.00

Question

Quizplus · Accepted Answer

This question requires the determination of an activity-based rate while also making sure that the unit-level cost driver is selected. In this case, indirect materials represent a unit-level cost, and the activity-based rate is calculated as follows: $2,660,500/124,800 budgeted pounds = $21.32 per pound. To calculate the amount of MOH costs allocated, multiply the activity-based rate against the number of pounds used in this recent run: $21.32 per pound times 2,380 pounds = $50,741.60 (Choice B).

Two Staff Accountants, Michael and Anthony, Are Having a Lively