Question

COVID Co. produces two different products (Product Y and Product B) 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 cost of Machining is $500,000, while the cost of Inspection is $30,000. Product Y uses 20% of total machine hours and 75% of total batches. What is the total Machining cost assigned to Product B? Select one: a. $400,000 O b $22,500 C. $7.500 d. $375,000

Answer 1

The company is producing two products which are product B and product Y.

ACTIVITY	ACTIVITY DRIVER
Machining	Machine hours
Inspection	Number of batches

Total cost of Machining = $ 500,000.

Machine hours used by product Y = 20 %

So remaining 80 % of machine hours are used by the product B.

Machining cost assigned to B = 500,000 x 80 %

Machining cost assigned to B = $ 400,000.

Hence, option A is the correct answer.

SUMMARY:

Total machining cost is $ 500,000. It is given that the product Y uses 20 % of total machining hours which means that remaining 80% of machine hours are used by the product B. So 80 % of Machining cosg should be assigned to the product B.

Hence, option A is the correct answer.