Question

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $140 per machine hour, and the activity rate for inspection is $560 per batch. The activity drivers are used as follows: Product A Product x Total Machine hours 1,400 3,200 4,600 Number of batches 54 18 72 What is the amount of Inspection cost assigned to Product X? Multiple Choice $196,000 $40,320 $10,080 $30,240

Answer 1

Under Activity Based Costing , cost assigned to activities rather than products or services . in this costing overhead & resources cost assigned more accuratly to products that consumed them. For that activity driver is determined for each activity.

In given Question , Activity driver for inspection cost is number of batches used by product .

$\therefore$ Inspection Cost = Activity rate per batch * Number of batches used by product.

Inspection cost per Batch : $560

Number of Batches used by product X : 18

Inspection Cost assingned to Product X : 18*$560 =$10,080