Question

One of Stine Company’s activity cost pools is machine setups, with estimated overhead of $300000. Stine produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?

Answer 1

$120,000

Step-by-step explanation:

In activity based costing, cost is allocated to each unit/department based on activities. In other words, the more the level of activities a unit/department is involved in, the more the cost that will be allocated to that unit and vice versa.

Given that Stine produces sparklers (400 setups) and lighters (600 setups), machine setup cost pool should be assigned to sparklers will be

= (400/(400 + 600)) × $300000

= $120,000