Pazzo's Pizza utilizes Activity-Based Costing (ABC) to account for its Manufacturing Overhead (MOH) costs, and they have determined that they have three key activities: Property tax ($88.77 per square foot), Floor supervisor wages ($18.00 per hour), and Cleaning ($8.98 per hour). Pazzo's Pizza anticipates that they will sell the following quantities of three different kinds of pizza: Cheese, 68,392 pizzas; Pepperoni, 49,708 pizzas; and Veggie, 26,909 pizzas. Each pizza will need to use the following resources:
Assuming that their estimates are final, what is the total product cost for the cheese pizzas? (Do not round intermediate calculations.)
A) $108,172.25
B) $182,697.31
C) $207,911.68
D) $219,818.92

Question

Pazzo's Pizza utilizes Activity-Based Costing (ABC) to account for its Manufacturing Overhead (MOH) costs, and they have determined that they have three key activities: Property tax ($88.77 per square foot), Floor supervisor wages ($18.00 per hour), and Cleaning ($8.98 per hour). Pazzo's Pizza anticipates that they will sell the following quantities of three different kinds of pizza: Cheese, 68,392 pizzas; Pepperoni, 49,708 pizzas; and Veggie, 26,909 pizzas. Each pizza will need to use the following resources:
 Assuming that their estimates are final, what is the total product cost for the cheese pizzas? (Do not round intermediate calculations.)
A) $108,172.25 
B) $182,697.31 
C) $207,911.68 
D) $219,818.92

Quizplus · Accepted Answer

This question will require multiple steps in order to arrive at the correct total cost for the cheese pizzas. First, calculate the total direct materials cost for cheese pizzas by taking $0.48 per pizza times 68,392 cheese pizzas to be produced: $0.48 × 68,392 = $32,828.16. Next, calculate the total direct labor cost for cheese pizzas by taking $1.28 per pizza times 68,392 cheese pizzas to be produced: $1.28 × 68,392 = $87,541.76. Then, calculate how much MOH will be allocated to cheese pizzas by multiplying the per-activity rate by the quantity of each activity: ($88.77 × 300 square feet) + ($18.00 × 2,000 supervisor hours) + ($8.98 × 4,100 cleaning hours) = $26,631.00 + $36,000.00 + $36,818.00 = $99,449.00. Lastly, combine direct materials cost, direct labor cost, and MOH cost. $32,828.16 + 87,541.76 + $99,449.00 = $219,818.92 (Choice D).

Pazzo's Pizza Utilizes Activity-Based Costing (ABC) to Account for Its