Rydingsward, Inc., has done a cost analysis for its production of reflectors.The following activities and cost drivers have been developed:
-What is the budgeted purchasing cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?
A) $150,000
B) $200,000
C) $100,000
D) none of these

Question

Rydingsward, Inc., has done a cost analysis for its production of reflectors.The following activities and cost drivers have been developed:  
-What is the budgeted purchasing cost if there was production of 50,000 reflectors that will require 8,000 machine hours, 25 batches, and 15,000 purchase orders?
A) $150,000 
B) $200,000 
C) $100,000 
D) none of these

Quizplus · Accepted Answer

To calculate the budgeted purchasing cost, we need to use the cost drivers and activity rates given in the table.

The cost of purchasing raw materials for 50,000 reflectors will be: 
$5 per reflector x 50,000 reflectors = $250,000

The cost of machine hours for 8,000 machine hours will be: 
$2 per machine hour x 8,000 machine hours = $16,000

The cost of batch setups for 25 batches will be: 
$1,500 per batch x 25 batches = $37,500

The cost of purchase orders for 15,000 orders will be: 
$20 per order x 15,000 orders = $300,000

Total budgeted purchasing cost = $250,000 + $16,000 + $37,500 + $300,000 = $603,500

Therefore, the best choice is B.