?

Managerial Accounting

Free Version

Upgrade subject to access all content

Moderate

Activity Based Costing: Second Stage Allocation

MGRACT-T1HL6Z

Wireless C​ompany 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

Cost Pools Smartphones Smartwatches Tablets Totals
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?

A

\$6,000,000.

B

\$4,800,000.

C

\$3,000,000.

D

\$1,400,000.