A company has two inspectors, each earning a salary of $75,000. One inspector works exclusively on inspecting parts received from outside suppliers, while the other spends 30% of her time inspecting parts and 70% of her time inspecting final products.

How much labor cost should be assigned to the activity, inspecting parts?

a. $100,000

b. $97,500

c. $75,000

d. $96,275

e. $95,000

Option (b) $97,500

Explanation:

Data provided in the question:

Salary of each inspector = $75,000

Time spend by one inspector on inspecting parts = 100%

Time spend by other inspector on inspecting parts = 30%

Time spend by other inspector on inspecting final product = 100%

Now,

The labor cost that should be assigned to the activity, inspecting parts is

= 100% of salary of one inspector + 30% of the salary of the other inspector

= $75,000 + (30% of $75,000)

= $75,000 + (0.30 * $75,000)

= $75,000 + $22,500

= $97,500

Option (b) $97,500