Herman Company manufactures two models of pens,a standard model and a deluxe model.Three activities have been identified in the production of the pens.The following information is available: If activity-based costing is used,the total cost assigned to the deluxe model is ________.
A)$22,500
B)$26,625
C)$33,375
D)$37,500

Question

Herman Company manufactures two models of pens,a standard model and a deluxe model.Three activities have been identified in the production of the pens.The following information is available:   If activity-based costing is used,the total cost assigned to the deluxe model is ________.
A)$22,500 
B)$26,625 
C)$33,375 
D)$37,500

Quizplus · Accepted Answer

To calculate the total cost assigned to the deluxe model using activity-based costing, we need to follow these steps:

1. Identify the cost drivers for each activity:

- Material handling: number of parts
- Machine setups: number of setups
- Quality control: number of inspections

2. Calculate the cost rate for each activity:

- Material handling: $15,000 / 10,000 parts = $1.50 per part
- Machine setups: $75,000 / 500 setups = $150 per setup
- Quality control: $30,000 / 1,000 inspections = $30 per inspection

3. Calculate the cost of each activity for each model:

- Standard model: 
Material handling: 8,000 parts x $1.50 per part = $12,000
Machine setups: 250 setups x $150 per setup = $37,500
Quality control: 250 inspections x $30 per inspection = $7,500
Total cost for standard model: $57,000

- Deluxe model:
Material handling: 12,000 parts x $1.50 per part = $18,000
Machine setups: 500 setups x $150 per setup = $75,000
Quality control: 500 inspections x $30 per inspection = $15,000
Total cost for deluxe model: $108,000

4. Allocate the total cost of each activity to each model based on the cost driver:

- Standard model:
Material handling: 8,000 / 10,000 x $15,000 = $12,000
Machine setups: 250 / 500 x $75,000 = $37,500
Quality control: 250 / 1,000 x $30,000 = $7,500
Total allocated cost for standard model: $57,000

- Deluxe model:
Material handling: 12,000 / 10,000 x $15,000 = $18,000
Machine setups: 500 / 500 x $75,000 = $75,000
Quality control: 500 / 1,000 x $30,000 = $15,000
Total allocated cost for deluxe model: $108,000

5. Calculate the total cost assigned to each model:

- Standard model: $57,000
- Deluxe model: $108,000

Therefore, the total cost assigned to the deluxe model using activity-based costing is $108,000.

The best choice is C.

Herman Company Manufactures Two Models of Pens,a Standard Model and a Deluxe