Josephine has been investigating a potential switch to Activity-Based Costing (ABC) for the cookie company where she works. She has decided to focus on their biggest seller, vanilla cookies, before moving forward with this decision. She has gathered the following pertinent financial data:
Josephine determined that there are three key activities where Manufacturing Overhead (MOH) costs can be divided along with the total activity for the year: cutting, $34,500 (25,600 direct labor hours); washing cookie trays, $37,900 (15,780 trays washed); and wages for the supervisors, $24,600 (12,630 supervisor hours). Josephine would like to decide soon. What is the total amount of MOH allocated to the vanilla cookies using ABC? (Do not round the calculations.)
A) $54,944.11
B) $55,087.50
C) $97,000.00
D) $98,330.00

Question

Josephine has been investigating a potential switch to Activity-Based Costing (ABC) for the cookie company where she works. She has decided to focus on their biggest seller, vanilla cookies, before moving forward with this decision. She has gathered the following pertinent financial data:
 Josephine determined that there are three key activities where Manufacturing Overhead (MOH) costs can be divided along with the total activity for the year: cutting, $34,500 (25,600 direct labor hours); washing cookie trays, $37,900 (15,780 trays washed); and wages for the supervisors, $24,600 (12,630 supervisor hours). Josephine would like to decide soon. What is the total amount of MOH allocated to the vanilla cookies using ABC? (Do not round the calculations.)
A) $54,944.11 
B) $55,087.50 
C) $97,000.00 
D) $98,330.00

Quizplus · Accepted Answer

This question requires several steps in order to determine the MOH allocated quantity of activity's cost driver to vanilla cookies. First, calculate an activity-based rate for each key activity based upon the total cost in activity cost pool being divided by the total activity for the year. Cutting, $34,500.00/25,600 DL hours = $1.35 per DL hour; washing trays, $37,900.00/15,780 tray washed = $2.40 per tray washed; and supervisor wages, $24,600.00/12,630 supervisor hours = $1.95 per supervisor hour. Now, allocate based upon the vanilla cookie activity: ($1.35 × 14,300) + ($2.40 × 8,000) + ($1.95 × 8,450) = $54,944.11 total MOH allocated to the vanilla cookies (Choice A).

Josephine Has Been Investigating a Potential Switch to Activity-Based Costing