Consolidated Yarns and Knits produces knitted jersey fabrics and two of their pr

Question

Consolidated Yarns and Knits produces knitted jersey fabrics and two of their products are produced in their Entenhausen facility. These two fabrics are of identical construction, but they are made from different yarns: one is made from a den 100 f 24 polyester yarn, the other from a den 100 f 23 Kevlar® yarn. The Kevlar® yarn is quite abrasive, causing knitting needles to wear out much faster. This results in higher downtime, more maintenance time for changing the needles, and higher auxiliaries costs for replacing needles. Downtime, maintenance cost, and auxiliaries are considered manufacturing overhead in this plant, and the total cost for these items in the plant is $18,000 each month. The following information is known about the products Product Sets of Needles Maintenance Monthly Preventive Cleanings Hours 80 240 $10,000.00 Production 250,000 yd. 200,000 yd Polyester Knit Kevlar Knit 20 ost per pool $5000.00 $3000.00 Being open-minded and flexible, the management in the plant in #16 decides to introduce an activity based costing system and use cost drivers to allocate the overhead costs for the three cost pools. What would the overhead cost be for the Kevlar knit if all overhead was allocated according to the cost drivers (activity based costing system)? Select one O a. $18,000.00 o b. $12,500.00 O c. $0.0625 d.$0.022 Oe. $5,500.00

Explanation / Answer

The correct answer is b. $ 12,500.00

Note :

Activity Activity cost pools Cost Polyster Knit Kevlar Knit Total Activity Rate ( Cost / Total Activity) Cost Assigned (Activity rate * Kevlar Knit Activity) Downtime 5,000 5.00 20.00 25.00 200.00 4,000.00 Maintenance Cost 10,000 80.00 240.00 320.00 31.25 7,500.00 Auxiliaries 3,000 10.00 5.00 15.00 200.00 1,000.00 12,500.00

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