Bunny Bread Company manufactures different types of bread and accounts for its production using an ABC costing system. It has a 5,000-square-foot factory space that it rents for $2,500 a month for all its manufacturing activities. Bunny Bread has identified its activities as follows: preparation and setup, kneading, baking, packaging, and quality control. Two thousand five hundred (2,500) square feet of the factory are used for kneading, while 750 square feet (each) are used for preparation and setup and quality control. Baking and packaging use 500 square feet each. When assigning indirect costs to each activity, how much factory rent should be assigned to the preparation and setup cost pool?

To assign the factory rent to the preparation and setup cost pool using Activity-Based Costing (ABC), we need to allocate the rent based on the proportion of factory space used for each activity.

 Since the factory space is 5,000 

square-foot and the rent is $2,500 a month, the cost per square foot is $2,500 / 5,000 = $0.50 per square foot per month.

The preparation and setup activity uses 750 square feet. Therefore, to find out how much factory rent should be assigned to the preparation and setup cost pool, we multiply the square footage of this activity by the cost per square foot:

Rent for preparation and setup = Square footage used by preparation and setup * Cost per square foot Rent for preparation and setup = 750 * $0.50 Rent for preparation and setup = $375

So, the preparation and setup cost pool should be assigned $375 of the monthly factory rent.