Asked by Shibuya Daemon on May 16, 2024
Verified
Delauder Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that activity-based costing system are listed below: The cost of serving customers, $1,608.00 per customer, is the cost of serving a customer for one year. Grennon Corporation buys only one of the company's products. The details of last year's purchases of this product are listed below:
According to the activity-based costing system, the total cost of the activity "Processing batches" for this customer this past year was closest to:
A) $1,049.55
B) $83.05
C) $193.30
D) $966.50
Processing Batches
The group of items or materials processed together through the same production steps in a batch production process.
Total Cost
The aggregate amount of all types of costs incurred in producing a good or service, including direct, indirect, fixed, and variable costs.
- Identify the overhead cost apportionment to products and customers as per Activity-Based Costing.
Verified Answer
SS
Savannah ScottMay 18, 2024
Final Answer :
D
Explanation :
First, we need to calculate the cost allocation rate for each activity cost pool:
- Processing Batches: $10,700 / 100 batches = $107 per batch
- Product Testing: $14,300 / 143 tests = $100 per test
- Customer Support: $19,200 / 12 customers = $1,600 per customer
- Other Overhead: $8,400 / 1,200 machine hours = $7 per machine hour
Next, we need to allocate the costs for Grennon Corporation's purchase using the activity cost rates:
- Processing Batches: 16 batches x $107 per batch = $1,712
- Product Testing: 2 tests x $100 per test = $200
- Customer Support: 1 customer x $1,600 per customer = $1,600
- Other Overhead: 46 machine hours x $7 per machine hour = $322
Therefore, the total cost of serving Grennon Corporation for the year is $1,712 + $200 + $1,600 + $322 = $3,834.
However, the question specifically asks for the cost of the activity "Processing Batches" for this customer. So, we only need to consider the cost allocated to Processing Batches, which is $1,712.
Therefore, the closest answer is option D: $966.50.
- Processing Batches: $10,700 / 100 batches = $107 per batch
- Product Testing: $14,300 / 143 tests = $100 per test
- Customer Support: $19,200 / 12 customers = $1,600 per customer
- Other Overhead: $8,400 / 1,200 machine hours = $7 per machine hour
Next, we need to allocate the costs for Grennon Corporation's purchase using the activity cost rates:
- Processing Batches: 16 batches x $107 per batch = $1,712
- Product Testing: 2 tests x $100 per test = $200
- Customer Support: 1 customer x $1,600 per customer = $1,600
- Other Overhead: 46 machine hours x $7 per machine hour = $322
Therefore, the total cost of serving Grennon Corporation for the year is $1,712 + $200 + $1,600 + $322 = $3,834.
However, the question specifically asks for the cost of the activity "Processing Batches" for this customer. So, we only need to consider the cost allocated to Processing Batches, which is $1,712.
Therefore, the closest answer is option D: $966.50.
Learning Objectives
- Identify the overhead cost apportionment to products and customers as per Activity-Based Costing.
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