Colonial Company manufactures decorative wall clocks and uses activity-based costing.Each clock consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce.Additional information is as follows: What is the cost of materials handling per clock?
A)$0.08.
B)$1.60.
C)$6.00.
D)$5.00.
E)$7.20.

Question

Colonial Company manufactures decorative wall clocks and uses activity-based costing.Each clock consists of 20 separate parts totaling $95 in direct materials, and requires 2.5 hours of machine time to produce.Additional information is as follows:  What is the cost of materials handling per clock?
A)$0.08. 
B)$1.60. 
C)$6.00. 
D)$5.00. 
E)$7.20.

Quizplus · Accepted Answer

Based on the information given, the cost of materials handling per clock is a cost driver for the activity-based costing system. Since each clock consists of 20 separate parts totaling $95 in direct materials, the cost of materials handling per clock can be calculated by dividing the total materials cost by the number of parts. This gives us a cost of $4.75 per part. Since each clock has 20 parts, the total cost of materials handling per clock is $4.75 x 20 = $95. Dividing this by the number of machine hours required per clock (2.5 hours) gives us a cost of $38 per machine hour. However, the question specifically asks for the cost of materials handling only, which is $95 per clock. Dividing this by the total number of activities involved in producing a clock (in this case, only materials handling) gives us a cost per activity of $95. Dividing this by the number of clocks produced in the period gives us the cost of materials handling per clock, which is $1.60. Therefore, the answer is B.

Colonial Company Manufactures Decorative Wall Clocks and Uses Activity-Based Costing