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 production 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 change this to a product name. This is confusing allocating production costs to production.
This question is about allocating MOH costs for production activity instead of allocating production costs. And, if the activity is Production, wouldn't it make sense to leave it named as Production?
A) $25,808.64
B) $40,227.00
C) $90,240.00
D) $100,835.68

Question

Quizplus · Accepted Answer

This question requires the determination of the budgeted activity rate for production which would be $376,000/50,000 machine hours = $7.52 per machine hour. Sparrow used 13,409 machine hours so the MOH allocated to Production would be $7.52 per machine hour × 13,409 machine hours = $100,835.68 (Choice D).