A jewelry supply house incurred $300,000 in factory overhead cost, of which $50,000 was identified as the cost of sanders for polishing tool bits. It also incurred rent of $75,000 for the building in which the tool bits and other products were manufactured. 20% of the building space is used to manufacture tool bits. It paid $100,000 in sales commission for tool bits. Under activity-based costing, the jeweler will identify ________ as product cost for tool bits.

Firstly the activity based costing is one of the most popular method of costing that is mainly used by manufacturing companies because of its accuracy , as it produces true cost data and properly classify's the cost incurred by the corporation in its process of manufacturing goods. Here cost would be identified and assigned to the overhead activities of the company and then those costs would be assigned to those goods.

Here for calculating the product cost for the tool bits we will see which cost are directly related to the tool bits.

So product cost for tool bits = cost of sanders for polishing tool bits

+

sales commission paid for tool bits

+

building space used for manufacturing the

tool bits

= $50,000 + $100,000 + 20% of $75,000

= $150,000 + 20/100 x $75,000

= $150,000 + $15,000

= $165,000