Telecom uses activity-based costing to allocate all manufacturing conversion costs. Telecom produces cellular telephones; each phone has $50.00 of direct materials, includes 20 parts and requires 6 hours of machine time. Additional information follows: What is the cost of materials handling per phone?
A)$18
B)$36
C)$10
D)$80

Question

Telecom uses activity-based costing to allocate all manufacturing conversion costs. Telecom produces cellular telephones; each phone has $50.00 of direct materials, includes 20 parts and requires 6 hours of machine time. Additional information follows:  What is the cost of materials handling per phone?
A)$18 
B)$36 
C)$10 
D)$80

Quizplus · Accepted Answer

The cost of materials handling per phone can be calculated using activity-based costing. Since each phone has $50.00 of direct materials, and there are 20 parts per phone, the cost of materials handling per part is $50.00/20 = $2.50. Since the phone requires 6 hours of machine time, and the cost of machine hours is $50.00/hour, the total cost of machine time per phone is $50.00/hour x 6 hours = $300.00. Therefore, the total conversion cost per phone is $300.00 + $2.50 = $302.50. The cost of materials handling per phone is $2.50. Therefore, the best choice is C) $10.

Telecom Uses Activity-Based Costing to Allocate All Manufacturing Conversion Costs