Jackson,Inc.produces two different products (Product 5 and Product Z)using two different activities: Machining,which uses machine hours as an activity driver,and Inspection,which uses number of batches as an activity driver.The cost of Machining is $500,000,while the cost of Inspection is $30,000.Product uses 20% of total machine hours and 75% of total batches.What is the total Inspection cost assigned to Product 5?
A)$7,500
B)$22,500
C)$125,000
D)$375,000

Question

Quizplus · Accepted Answer

To allocate the total Inspection cost to Product 5, we need to first calculate the proportion of Inspection cost that is attributable to Product 5 based on the activity driver.

Product 5 uses 20% of the total machine hours, so it should be allocated 20% of the Machining cost:

20% of $500,000 = $100,000

Product 5 uses 75% of the total batches, so it should be allocated 75% of the Inspection cost:

75% of $30,000 = $22,500

Therefore, the total Inspection cost assigned to Product 5 is $22,500.