Question

Linden, Inc. uses a 5,400 square foot factory space that it rents for $3,300 a month for all its manufacturing activities. Linden has decided to switch to an activity-based costing system, and has identified its activities as follows: Preparation and Setup, Machining, Finishing, and Quality Control. 2,900 square feet of the factory are used for machining, while 1,000 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 500 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool

Answer 1

$611

Step-by-step explanation:

We can easily calculate the rate assigned to the preparation and setup department by dividing the total rent in total space and multiplying it to the space assigned to the preparation and setup department.

DATA

Total space = 5400 sq foot

total rent = $3,300

Space used for preparation and setup = 1,000 sq foot

Solution

Rent assigned to preparation and setup = (Total Rent/Total space) x Space used by preparation and setup department

Rent assigned to preparation and setup = ($3.300/5400) x 1,000

Rent assigned to preparation and setup = $611