ckson, Inc. produces two different products (Product 5 and Product Z) 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 $520,000, while the cost of Inspection is $40,000. Product 5 uses 25% of total machine hours and 65% of total batches. What is the total Machining cost assigned to Product Z?

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4 May, 07:59

ckson, Inc. produces two different products (Product 5 and Product Z) 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 $520,000, while the cost of Inspection is $40,000. Product 5 uses 25% of total machine hours and 65% of total batches. What is the total Machining cost assigned to Product Z?

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Brendon · Answer 1

Total Machining cost assigned to Product Z = $390000

Explanation:

Lets assume the total machine hours to be 1000 hours.

Out of these 10000 hours, 25% hours are used by Porduct 5 and the remaining 75% hours are used by Product Z.

The overheads are distributed using the Overhead Absorption Rate.

OAR Machining = 520000 / 10000 = 52 per Machine Hour

The machine hours used by product z is 0.75 * 10000 = 7500 hours

Maching cost assigned to Product Z = 7500 * 52 = $390000