Beacon Hill, Corp. manufactures balloons that it then packages and sells throughout the country. Beacon Hill would like to have a better understanding of their overall budgets, and they have decided to implement the use of Activity-Based Costing (ABC). They have decided upon four unique key activities that they would like to assign activity-based rates to the following Manufacturing Overhead (MOH) costs: quality Inspection, $32,400 (2,400 inspection hours); maintenance, $16,858 (2,000 maintenance hours); moving and sorting, $12,444 (662 pounds of materials); and factory supervisor wages, $58,784 (4,788 supervisor hours). Beacon Hill will be allocating MOH to two different products: red balloons and blue balloons. Each balloon used the following resources:
Red balloons: 1,400 inspection hours, 1,450 maintenance hours, 412 pounds of materials, and 2,448 supervisor hours
Blue balloons: 1,000 inspection hours, 550 maintenance hours, 250 pounds of materials, and 2,340 supervisor hours
How much of the Quality Inspection MOH will be allocated to the red balloons?
A) $23,142.86
B) $32,400.00
C) $13,500.00
D) $18,900.00

Question

Quizplus · Accepted Answer

First, calculate an activity-based rate for the quality inspection activity. Divide the quality inspection cost of $32,400 by the total quantity of the activity's cost driver of 2,400 for an activity-based rate of $13.50 per hour. The red balloons will have $13.50 per hour times 1,400 inspection hours for a total allocated MOH of $18,900 (Choice D).