Roland's company makes and sells scarves, and he has just completed his annual financial analysis for the most recent year-end. The company produces two varieties of scarves: Silk and Cotton. Roland used a single plant-wide rate based on Direct Labor (DL) hours this year just as he had for many years prior, but he is not positive that this is the best approach moving forward. Roland has become interested in Activity-Based Costing (ABC). Roland has determined that Manufacturing Overhead (MOH) key activities include: Folding, $19,420.00 (driven by DL hours); Cleaning/Maintenance, $10,330.00 (driven by cleaning/maintenance hours); and Quality inspections, $4,600.00 (driven by number of inspections). He has compiled the following financial data to assist with his evaluation of the costing systems:
What is the total amount of MOH allocated to the silk scarves using ABC? (Do not round the calculations.)
A) $15,654.30
B) $18,695.70
C) $19,420.00
D) $21,500.00

Question

Roland's company makes and sells scarves, and he has just completed his annual financial analysis for the most recent year-end. The company produces two varieties of scarves: Silk and Cotton. Roland used a single plant-wide rate based on Direct Labor (DL) hours this year just as he had for many years prior, but he is not positive that this is the best approach moving forward. Roland has become interested in Activity-Based Costing (ABC). Roland has determined that Manufacturing Overhead (MOH) key activities include: Folding, $19,420.00 (driven by DL hours); Cleaning/Maintenance, $10,330.00 (driven by cleaning/maintenance hours); and Quality inspections, $4,600.00 (driven by number of inspections). He has compiled the following financial data to assist with his evaluation of the costing systems:
 What is the total amount of MOH allocated to the silk scarves using ABC? (Do not round the calculations.)
A) $15,654.30 
B) $18,695.70 
C) $19,420.00 
D) $21,500.00

Quizplus · Accepted Answer

This question requires several steps in order to determine the MOH allocated to either of the scarves. First, calculate an activity-based rate for each key activity based upon the total cost in activity cost pool divided by the total quantity of activity's cost driver from both scarves. Folding, $19,420.00/(6,250 + 7,100) = $1.45 per DL hour; Cleaning/Maintenance, $10,330.00/(1,200 + 1,500) = $3.83 per cleaning/maintenance hour; and Quality Inspections, $4,600.00/(600 + 800) = $3.29 per inspection. Now, allocate based upon the silk scarf activity: ($1.45 x 6,250) + ($3.83 × 1,200) + ($3.29 × 600) = $15,654.30 total MOH allocated to the silk scarves (Choice A).

Roland's Company Makes and Sells Scarves, and He Has Just