Question

# X-TREME Corporation has the following activities: creating bills of materials (BOM), studying manufacturing capabilities, improving manufacturing...

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 creating BOMs activity?

a.\$125,000

b.\$43,750

c.\$31,250

d.\$7,500

cost assigned to the creating BOMs activity =\$7500

Working notes for the above answer is as under

It was given in the question that 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

And Supplies are consumed Creating BOMs is 25%

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

cost assigned to the creating BOMs activity

=(20% of remaining engineer cost)+(20% of supply cost)

=(20% x 25,000)+(25%x10,000)

=5,000+2,500

=\$7,500