Question

Bunny Bread Company manufactures different types of bread and accounts for its production using an ABC costing system. It has a 5,000-square-foot factory space that it rents for $2,500 a month for all its manufacturing activities. Bunny Bread has identified its activities as follows: preparation and setup, kneading, baking, packaging, and quality control. Two thousand five hundred (2,500) square feet of the factory are used for kneading, while 750 square feet (each) are used for preparation and setup and quality control. Baking and packaging use 500 square feet each. When assigning indirect costs to each activity, how much factory rent should be assigned to the preparation and setup cost pool?

Answer 1

Answer:

Area occupied by Preparation and setup cost = $375

Explanation:

Under activity based costing, cost is allocated based on each level of activity.

Provided monthly rent = $2,500 for 5,000 square feet.

Rate per square feet  = $2,500/5,000 = $0.5 per square feet

Area occupied by Preparation and setup cost = $0.5 X area taken 750 square feet = $375

As this was provided in the information, given in question.

Area occupied by Preparation and setup cost = $375