Dorpinghaus Corp. manufactures two models of its telephones, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:

-If activity-based costing is used, then the total cost of the components used in the deluxe model would be
A) $3,455.
B) $110,545.
C) $193,455.
D) $304,000.

Question

Dorpinghaus Corp. manufactures two models of its telephones, a standard and a deluxe model. Three activities have been identified as cost drivers and the related costs pooled together to arrive at the following information:
 
-If activity-based costing is used, then the total cost of the components used in the deluxe model would be
A) $3,455. 
B) $110,545. 
C) $193,455. 
D) $304,000.

Quizplus · Accepted Answer

Using activity-based costing, the cost of components for the deluxe model can be calculated as follows:
Total cost of Activity 1 = $50,000 + $30,000 = $80,000
Total cost of Activity 2 = $10,000 + $60,000 = $70,000
Total cost of Activity 3 = $3,000 + $50,000 = $53,000
Total cost of components for deluxe model = (0.5 × $80,000) + (0.3 × $70,000) + (0.2 × $53,000) = $40,000 + $21,000 + $10,600 = $71,600
Adding the fixed cost of $121,855, the total cost of the deluxe model would be $193,455.