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 it would afford them the opportunity to better account for their costs. She determined that Flowy had three key activities to use for MOH budgeted costs: Material sorting, garment inspection, and materials management wages. She has collected the following data:
Material 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 slippers used 2,862 inspection hours, what amount of the garment inspection MOH costs will be allocated to the gowns? (Do not round intermediate calculation.)
A) $22,394.40
B) $29,043.31
C) $33,599.88
D) $55,986.00

Question

Quizplus · Accepted Answer

First, calculate an activity-based rate for the garment inspection activity. Then, divide the garment inspection cost of $55,986 by the total quantity of the activity's cost driver of 4,770 for an activity-based rate of $11.74 per hour. The gowns will have $11.74 per hour times 1,908 hours (4,770 inspection hours minus 2,862 inspection hours used by slippers) for a total allocated MOH of $22,394.40 (Choice A).

Sarah Is an Accountant for Flowy, Inc