Dorpinghaus Corp. manufactures two models of its telephones, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

-If activity-based costing is used, then the product setup cost for the standard model would be
A) $51,429.
B) $68,571.
C) $1,071.
D) $120,000.

Question

Dorpinghaus Corp. manufactures two models of its telephones, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:
 
-If activity-based costing is used, then the product setup cost for the standard model would be
A) $51,429. 
B) $68,571. 
C) $1,071. 
D) $120,000.

Quizplus · Accepted Answer

Activity-based costing allocates costs based on activities. If the total setup cost is $120,000 and the standard model accounts for 3 out of 7 setups, then the cost allocated to the standard model is ($120,000 * 3/7) = $51,429.