Question

Linden, Inc. uses a 5,700 square foot factory space that it rents for $2,800 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. 2,600 square feet of the factory are used for machining, while 1,300 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

$639

Step-by-step explanation:

Rent assigned to preparation and setup = Total rent / Total space * Space used by preparation and setup

= $2,800 / 5,700 * 1,300

= 638.5965

= $639

Therefore, the factory rent that would be assigned to Preparation and Setup cost pool is $639.