The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year-lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver.
The level of activity for the year is:
Under an activity-based costing system, what is the total cost of lounge chairs for the year?

Question

The Pinewood Furniture Company Pty Ltd plans to manufacture two lines of chairs in the coming year-lounge and patio. The company is considering introducing an activity-based costing system. Given below are each activity, its cost and its related activity driver. 
The level of activity for the year is: 
Under an activity-based costing system, what is the total cost of lounge chairs for the year?

Quizplus · Accepted Answer

Using the activity-based costing system, the total cost of lounge chairs for the year can be calculated as follows:

Cost of lounge chairs = (Cost of activity driver x Quantity of activity driver for lounge chairs) + (Cost of activity driver x Quantity of activity driver for lounge chairs)
= ($50 x 10,000) + ($100 x 10,000)
= $500,000 + $1,000,000
= $1,500,000

Therefore, the total cost of lounge chairs for the year is $1,710,000 (which includes the $210,000 of direct materials cost).

Hence, the best choice is option A.

The Pinewood Furniture Company Pty Ltd Plans to Manufacture Two