5) Lynwood, Inc. produces two different products (Product A and Product X) using

Question

5)

Lynwood, Inc. produces two different products (Product A and Product X) using two different activities: Machining, which uses machine hours as an activity driver, and Inspection, which uses number of batches as an activity driver. The activity rate for Machining is $200 per machine hour, and the activity rate for Inspection is $500 per batch. Usage of the activity drivers are as follows:

  

$780,000

$22,500

$380,000

$950,000

   Product A Product X Total   Machine hours 1,900      3,900     5,800        Number of batches 45      22     67     

Explanation / Answer

Machining cost assigned to rpoduct X = Machine hours * Activity rate per machine hour

= 3900*200 i.e 780000

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