Question

A company has provided the following data from its activity-based costing system related to fixed manufacturing overhead: Activity cost pool Total cost Practical capacity of activity Assembly $65,000 55,000 machine hours Processing $76,000 2,500 orders Inspection $55,000 2,200 inspection hours The company makes 40 units of Product X a year, requiring a total of 690 machine-hours, 40 orders, and 10 inspection-hours per year. The product's direct materials cost is $45 per unit and its direct labor cost is $35 per unit. In the most recent year, 40,000 total machine hours were actually used for the assembly activity. Under the activity-based costing system, the total cost of "unused capacity" related to the assembly activity for the most recent year is closest to: Group of answer choices $15,000.00 $18,980.34 $16,543.49 $17,727.27 $24,375.00

Answer 1

Answer:

Under the activity-based costing system, the total cost of "unused capacity" related to the assembly activity for the most recent year is closest to:

$17,727.27.

Explanation:

a) Data and Calculations:

Activity cost pool   Total cost    Practical capacity                   ABC rates

                                                        of activity

Assembly              $65,000             55,000 machine hours   $1.182 /mh

Processing            $76,000               2,500 orders               $30.40 / order

Inspection             $55,000               2,200 inspections      $25.00 / inspection

Product X

Number of units made = 40

Machine hours required = 690

Processing orders = 40 orders

Inspection hours = 10 hours

Direct material cost per unit = $45

Direct labor cost per unit =        35

Most recent actual machine hours = 40,000 hours

Unused capacity = 15,000 (55,000 - 40,000)

Total cost of unused capacity = $17,730 (15,000 * $1.182) approx.