Wireless Company manufactures smartphones, smartwatches, and tablets. They have decided to use activity-based costing in allocating its overhead costs. Management has assessed overhead costs as including activities and their respective cost driver, volume and total cost for production of its three products for the year.
|Activity||Cost Driver||Volume||Total Cost|
|Purchasing||Number of purchase orders||700,000||\$1,400,000|
|Building occupancy||Square feet occupied||60,000||\$4,800,000|
|Equipment operations||Machine Hours||8,000,000||\$6,000,000|
Based on the production managers’ assessments, the operations vice-president has determined that its activities are used by its products as follows.
Second-Stage Allocation to Products
|Purchasing—number of purchase orders||400,000||200,000||100,000||700,000 purch. orders|
|Building occupancy—square feet||20,000||10,000||30,000||60,000 sq. ft.|
|Equipment operations—machine hours||4,000,000||3,000,000||1,000,000||8,000,000 mach. hrs.|
What is the total equipment operations cost allocated to the smartphone for the year?