Premium Pizza, Inc. is in the process of documenting all their costs using Activity-Based Costing (ABC). Premium specializes in unique sauces, and they have assigned the following Manufacturing Overhead (MOH) costs to their key activities: Moving and sorting (150 pounds moved), $32,000; quality control (800 inspections completed), $22,400; and Cleaning and Maintenance (2,050 cleaning/maintenance hours), $16,820.
How much of the Cleaning and Maintenance MOH would be allocated to the white sauce units? (If required, round calculations to two decimal places.)
A) $5,535.00
B) $6,300.00
C) $12,799.80
D) $26,217.25

Question

Premium Pizza, Inc. is in the process of documenting all their costs using Activity-Based Costing (ABC). Premium specializes in unique sauces, and they have assigned the following Manufacturing Overhead (MOH) costs to their key activities: Moving and sorting (150 pounds moved), $32,000; quality control (800 inspections completed), $22,400; and Cleaning and Maintenance (2,050 cleaning/maintenance hours), $16,820.
 How much of the Cleaning and Maintenance MOH would be allocated to the white sauce units? (If required, round calculations to two decimal places.)
A) $5,535.00 
B) $6,300.00 
C) $12,799.80 
D) $26,217.25

Quizplus · Accepted Answer

First, calculate an activity-based rate for the activity needed: cleaning and maintenance. Cleaning and Maintenance: $16,820/2,050 hours = $8.20 per hour. Lastly, allocate the costs to the white sauce units based upon that activity's level. Cleaning and Maintenance: $8.20 × 675 hours = $5,535.00 (Choice A).