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A closet batch uses 10 setups at $50, 10 moves at $15, 160 inspections at $25, 60 cleanups at $10, 350 machine hours at $30 and 90 direct labour hours at $15. What overhead does the batch absorb?
A$15,975
B$16,380
C$17,100
D$18,500
Answer & Solution
Correct answer: C. $17,100
1. Setups: 10 times $50 gives $500.
2. Moves: 10 times $15 gives $150.
3. Inspections: 160 times $25 gives $4,000.
4. Cleanups: 60 times $10 gives $600.
5. Cutting: 350 machine hours times $30 gives $10,500.
6. Assembly: 90 direct labour hours times $15 gives $1,350.
7. The six activity costs add to $17,100.
8. $16,380 and $15,975 are the Job 2 figures under the single and departmental rate methods, both of which charge fewer inspections.
_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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