Rydingsward, Inc., has done a cost analysis for its production of reflectors.The following activities and cost drivers have been developed:
-What is the machining cost for production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

Question

Rydingsward, Inc., has done a cost analysis for its production of reflectors.The following activities and cost drivers have been developed:  
-What is the machining cost for production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?

Quizplus · Accepted Answer

Using the cost drivers given, we can calculate the cost for each activity:

Machining cost per machine hour = $4.00

Batch cost per batch = $400

Purchase order cost per purchase order = $20

Total machining cost = (8,000 machine hours) x ($4.00 per machine hour) = $32,000

Total batch cost = (25 batches) x ($400 per batch) = $10,000

Total purchase order cost = (15,000 purchase orders) x ($20 per purchase order) = $300,000

Therefore, the total cost of production for 50,000 reflectors is:

Total Cost = Machining cost + Batch cost + Purchase order cost

Total Cost = $32,000 +$10,000 + $300,000

Total Cost = $342,000

The correct answer is B, $43,000. It is important to pay attention to the wording of the question - it asks for the machining cost only, which is $32,000.