Sparrow, Inc. produces birdseed that it sells to regional markets. Susan, the accountant at Sparrow, is evaluating the impact of Activity-Based Costing (ABC) on several activities for the factory. Sparrow has the following budgeted costs: Direct Materials, $150,000; and Direct Labor, $98,000. Their budgeted Manufacturing Overhead (MOH) costs are comprised of the following: Setup, $75,000 (1,000 setup hours); Production, $376,000 (50,000 machine hours); and Maintenance, $63,400 (12,000 maintenance hours). Allocate MOH costs to Setup activity using the budgeted activity-based rate considering the actual usages of 262 setup hours, 13,409 machine hours, and 3,432 maintenance hours.
I would replace with a product name. Allocating Setup costs to Setup activity is confusing.
This question is about allocating MOH costs for setup activity instead of allocating setup costs. And, if the activity is Setup, wouldn't it make sense to leave it named as Setup?
A) $19,650
B) $25,676
C) $39,300
D) $75,000

Question

Quizplus · Accepted Answer

This question requires the determination of the budgeted activity rate for Setup which would be $75,000/1,000 setup hours = $75.00 per setup hour. Sparrow used 262 hours so the MOH allocated to Setup would be $75.00 per setup hour × 262 setup hours = $19,650 (Choice A).