Tom Nook uses a factory to make Island materials. The factory has 6,650 square feet of space and Tom rents the factory for $2,900 a month. Tom Nook has decided to switch to an activity-based costing system, and uses the following cost pools: Setups, Machining, Fine Tuning, and Quality Control 2,500 square feet of the factory are used for machining while 1700 square feet (each) are used for Setups and Quality Control, Fine Tuning uses 750 square feet. When assigning Indirect costs to each activity, how much factory rent should be assigned to the Setups cost pool?
a) $375
b) $3,400
c) $51700
d) $5741
The Correct Answer and Explanation is:
To determine how much factory rent should be assigned to the Setups cost pool, we need to allocate the rent based on the space used by each cost pool. The total factory space is 6,650 square feet, and Tom Nook rents the factory for $2,900 per month.
Step 1: Calculate the cost per square foot of the factory rent
The total monthly rent is $2,900, and the total factory space is 6,650 square feet. We calculate the cost per square foot as follows:
[
\text{Cost per square foot} = \frac{\text{Total Rent}}{\text{Total Square Feet}} = \frac{2,900}{6,650} = 0.4369 \text{ (rounded to 4 decimal places)}
]
Step 2: Assign the rent to the Setups cost pool
The Setups cost pool uses 1,700 square feet of the factory space. To calculate how much rent should be assigned to the Setups cost pool, we multiply the space used for Setups by the cost per square foot:
[
\text{Rent for Setups} = \text{Space used for Setups} \times \text{Cost per square foot} = 1,700 \times 0.4369 = 742.73
]
Thus, the rent assigned to the Setups cost pool is approximately $742.73.
Conclusion
Since the given options don’t match this exact value, it seems that the closest answer might involve rounding or additional context not provided. Based on the calculations, $742.73 is the rent allocated to the Setups cost pool, which is not listed in the options. However, given this discrepancy and understanding the rounding approach often used in practice, we would need to reassess the options or consider approximations used in the problem setup.
The correct calculated rent does not directly correspond to any of the provided answer choices, but based on the correct steps and calculations, the assignment should be around $742.73.