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A dresser batch uses 24 setups at $50, 20 moves at $15, 140 inspections at $25, 85 cleanups at $10, 950 machine hours at $30 and 210 direct labour hours at $15. What overhead does the batch absorb?
A$17,100
B$37,500
C$38,220
D$38,625
Answer & Solution
Correct answer: B. $37,500
1. Setups: 24 times $50 gives $1,200.
2. Moves: 20 times $15 gives $300.
3. Inspections: 140 times $25 gives $3,500.
4. Cleanups: 85 times $10 gives $850.
5. Cutting: 950 machine hours times $30 gives $28,500.
6. Assembly: 210 direct labour hours times $15 gives $3,150.
7. The six activity costs add to $37,500.
8. $17,100 is the closet batch total, and $38,220 and $38,625 come from the single and departmental rate methods.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.4 Activity-Based Costing for a Manufacturing Business to Estimate Factory Overhead_
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