Sarah is an accountant for Flowy, Inc., a small factory that manufactures disposable hospital gowns and slippers. Previously, Flowy had been utilizing a traditional costing system to account for their budgeted Manufacturing Overhead (MOH) costs. After a few years, Sarah recommended that they opt for Activity-Based Costing (ABC) as that would afford them the opportunity to better account for their costs. She has determined that Flowy had three key activities to use for MOH budgeted costs: Materials sorting, garment inspection, and materials management wages. She has collected the following data:
Materials sorting: $37,888 (3,678 sorting hours)
Garment inspection: $55,986 (4,770 inspection hours)
Materials management wages: $18,900 (13,000 management hours)
If gowns used 2,000 sorting hours, then what amount of material sorting MOH costs will be allocated to slippers? (Do not round intermediate calculation.)
A) $13,328.32
B) $17,285.50
C) $20,600.00
D) $37,888.00

Question

Quizplus · Accepted Answer

First, calculate an activity-based rate for the materials sorting activity. Then, divide the materials sorting cost of $37,888 by the total quantity of the activity's cost driver of 3,678 for an activity-based rate of $10.30 per hour. The slippers will have $10.30 per hour times 1,678 sorting hours (3,678 sorting hours minus 2,000 used by gowns) for a total allocated MOH of $17,285.50 (Choice B).

Sarah Is an Accountant for Flowy, Inc