Question

X-TREME Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing processes, training employees, and designing tooling. The general ledger accounts reveal the following expenditures for manufacturing engineering:

Salaries	$ 75,000
Equipment	40,000
Supplies	10,000
Total	$125,000

The equipment is used for two activities: improving processes and designing tooling. Thirty-five percent of the equipment's time is used for improving processes and 65 percent is used for designing tools. The salaries are for two engineers. One is paid $50,000, while the other earns $25,000. The $50,000 engineer spends 40 percent of his time training employees in new processes and 60 percent of his time on improving processes. The remaining engineer spends equal time on all activities. Supplies are consumed in the following proportions:

Creating BOMs	25%
Studying capabilities	10%
Improving processes	20%
Training employees	25%
Designing tooling	20%

What is the cost assigned to the improving processes activity?

a.$51,000

b.$25,000

c.$250,000

d.$43,750

Answer 1

Answer: A)$51,000

cost assigned to the improving processes activity =$51,000

Working notes for the above answer is as under

1

It was given in the question that The equipment is used for two activities:

improving processes and designing tooling

Thirty-five percent (35%)of the equipment's time is used for improving processes

2

The $50,000 engineer spends 40 percent of his time training employees in new processes and 60 % of his time on improving processes.

3

The remaining engineer spends equal time on all activities.

So its cost will be divided between 5 activity in the ratio of 20% each activity

4

And Supplies are consumed Creating BOMs is 20%

So now we will find cost assigned to the creating improving processes activity as under

cost assigned to the creating improving processes activity

=(35%% of Equipment )+(60% of one engineer)+(20% of remaining engineer cost)+(20% of supply cost)

=(35%x 40,000)+ (60%x50,00)+(20% x 25,000)+(20%x10,000)

=$51,000