Question

Santana Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin, plant. The following costs are budgeted for the first quarter’s operations.

Machine setup, indirect materials		$ 4,000
Inspections		16,000
Tests		4,000
Insurance, plant		110,000
Engineering design		140,000
Depreciation, machinery		520,000
Machine setup, indirect labor		20,000
Property taxes		29,000
Oil, heating		19,000
Electricity, plant lighting		21,000
Engineering prototypes		60,000
Depreciation, plant		210,000
Electricity, machinery		36,000
Machine maintenance wages		19,000

Classify the above costs of Santana Corporation into activity cost pools using the following: engineering, machinery, machine setup, quality control, factory utilities, maintenance.

Machine setup, indirect materials

Inspections

Tests

insurance, plant

engineering design

depreciation, machinery

machine setup, indirect labor

property taxes

oil, heating

electricity, plant lighting

engineering prototypes

depreciation, plant

electricity, machinery

machine maintenance wages

then Identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.

Answer 1

Cost can be allocated to various products using cost drivers.

Activity cost pool is aggregrate of all the costs that are associated to particular activity.

Cost driver are the base o which activity cost is incurred. The cost driver causes changes in activity costs.

Budgeted costs	Activity cost pool	explanation	Cost driver
Machine setup, indirect materials	Machine set up	Machine setups costs should be allocated on the basis of number of set ups	Number of set ups
Inspections	Quality control	because inspection is done to check the quality. Number of inspection done should be used to allocate cost	Number of inspection
Tests	Quality control	because test is done to check the quality.Number of tests done should be used to allocate cost	Number of tests
Insurance, plant	Factory utilities	Insurance related to factory is direct cost classified as utility cost. The area of factory should be used to allocate insurance cost.	Square feet
Engineering design	Engineering	Engineering designs costs should be allocated on number of enginnering hours used by the product.	Engineering hours
Depreciation, machinery	Factory utilities	Machine hours used by product should be used to allocate depreciation on machinery	Machine hours
Machine setup, indirect labor	Machine set up	Indirect labor used on setting up machine should be alloacted on the basis of number of setups	Number of set ups
Property taxes	Factory utilities	tax related to factory is direct cost classified as utility cost. The area of factory should be used to allocate factory property tax.	Square feet
Oil, heating	Factory utilities	oil heating related to factory is direct cost classified as utility cost. The area of factory should be used to allocate factory oil , heating	Square feet
Electricity, plant lighting	Factory utilities	electricity plant lighting related to factory is direct cost classified as utility cost. The area of factory should be used to allocate such costs.	Square feet
Engineering prototypes	Engineering	Engineering prototype qcosts should be allocated on number of enginnering hours used by the product.	Engineering hours
Depreciation, plant	Factory utilities	Depreciation related to factory is direct cost classified as utility cost. The area of factory should be used to allocate such costs.	Square feet
Electricity, machinery	Machinery	Electricity for machinery consumption should be allocated using machinery hours used by the products	Machine hours
Machine maintenance wages	Maintenance	Maintenance wages should be allocated using machine hours	Machine hours

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