Question

Quasi-Tech Corporation produces specially machined parts. The parts are produced in batches in one continuous manufacturing process. Each part is custom produced and requires special engineering design activity (based on customer specifications). Once the design is completed, the equipment can be set up for batch production. Once the batch is completed, a sample is taken and inspected to see if the parts are within the tolerances allowed. Thus, the manufacturing process has four activities: engineering, setups, machining, and inspecting. Costs have been assigned to each activity using direct tracing and resource drivers: Activity Engineering Setups Machining Inspection Expected Cost $1,000,000 $ 900,000 $2,000,000 $ 800,000 Activity Driver engineering hours setups machine hours inspection hours Activity Capacity 5,000 hours 200 setups 25,000 machine hours 2,500 inspection hours Owens produces two models: Model X and Model Y. The following table shows how the two products consume activity. Units completed Engineering hours Setups Machine hours Inspection hours Model 300,000 1,000 80 20,000 1,500 Model D 200,000 4,000 120 5,000 1,000 Refer to Figure 4-20. How much overhead is assigned to Model C using the 4 activity drivers?

Answer 1

Answer:

Correct answer is:

$2,640,000

Explanation:

Let us first calculate activity rates:

Activity Engineering Setups Machining Inspection Expected Cost Activity Driver (EC) Activity Driver Quantity (Q) $1,000,000 Engineering hours $5,000 $900,000 Setups $200 $2,000,000 Machine hours $25,000 $800,000 Inspection hours $2,500 Activity Rate (EC/Q) $200 $4,500 $80 $320

Overhead assigned to model C = 1000 * $200 + 80 * $4,500 + 20000 * $80 + 1500 * $320

= $2,640,000

Option B is correct and other options A, C and D are incorrect.