Quality Stereo Company has provided the following information regarding its activity-based costing system

Question

• Purchasing department costs are allocated based on purchase orders, and the predetermined overhead allocation rate is $79 per purchase order.
• Assembly department costs are allocated based on the number of parts used, and the predetermined overhead allocation rate is $2 per part.
• Packaging department costs are allocated based on the number of units produced, and the predetermined overhead allocation rate is $2 per unit produced.

Each stereo produced has 50 parts, and the direct materials cost per unit is $62. There are no direct labor costs. Quality Stereo has an order for 1,000 stereos, which will require 40 purchase orders in all. What is the total cost for the 1,000 stereos?
A) $167,160
B) $104,480
C) $103,160
D) $164,000

Answer 1

A .A)
Computation of total cost of 1,000 stereos:
Direct material ($62 per unit x 1,000 units) $62,000
Purchasing department costs ($79 per purchase order x 40 purchase orders) 3,160
Assembly department costs ($2 per part x 1,000 units) 100,000
Packaging department costs ($2 per unit x 1,000 units) 2,000
Total cost $167,160