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Ferguson Molding Company produces custom bottle caps and jar covers for large cosmetic companies. Each customer owns the custom-made molds that are used for the caps and jar covers, so caps are produced only to customer order. Each order requires the setting of molds in molding machines. Two full time mechanics, whose combined total annual salary and benefits are $160,000 per year, are employed setting up and breaking down the molding machines. An order consists of anywhere from 50,000 to 500,000 units. 80 orders were received during the year 2008 for individual custom production runs. The total number of units produced was 8 million.
-The most appropriate cost driver base to allocate the salaries of the two mechanics under Activity-Based Costing would be:
A) The number of bottle caps and jar covers produced
B) The number of setups
C) The number of hours spent on each setup
D) The number of setup mechanics

Question

Quizplus · Accepted Answer

The most appropriate cost driver for allocating the salaries of the two mechanics under Activity-Based Costing (ABC) is the number of setups. This is because each customer order requires setting up and breaking down the molding machines, making the number of setups directly related to the mechanics' work and the costs incurred.

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