Linden, Inc. uses a 6,400 square foot factory space that it rents for $3,050 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. 2,800 square feet of the factory are used for machining, while 1,500 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 600 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool

Question

Business

Johnathon Costa

9 September, 01:41

Linden, Inc. uses a 6,400 square foot factory space that it rents for $3,050 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. 2,800 square feet of the factory are used for machining, while 1,500 square feet (each) are used for Preparation and Setup and Quality Control. Finishing uses 600 square feet. When assigning indirect costs to each activity, how much factory rent should be assigned to the Preparation and Setup cost pool

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Keshawn Harper · Answer 1

Rent assigned to preparation and setup cost pool is $714.84

Explanation:

Preparation and setup takes 1,500 square feet out of the total 6,400 square feet available, hence the factory rent assigned to preparation and setup from the total rent of $3,050 i calculated thus:

Preparation and setup assigned rent=total rent/total square feet*preparation and setup square feet

=$3050/6400*1500

=$714.84

That represents the rent amount attributable to preparation and setup cost pool on monthly basis