7

12/16/21, 1:32 PM Assignment Print View
https://ezto.mheducation.com/hm.tpx 1/101

1.
Jackson Painting paints the interiors and exteriors of homes and commercial buildings. The
company uses an activity-based costing system for its overhead costs. The company has provided
the following data concerning its activity-based costing system.

Activity Cost Pool Activity Measure Annual Activity
Painting overhead Square metres 10,000 square metres
Job support Jobs 320 jobs
Other None Not applicable
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining
costs.
The company has already finished the first stage of the allocation process in which costs were
allocated to the activity cost centres. The results are listed below:

Painting Job Support Other Total
Painting overhead $56,000 $43,000 $24,000 $120,000
Office expense 18,000 92,200 56,000 160,000
Total $74,000 $135,200 $80,000 $289,200
Required:
a) Compute the activity rates (i.e., cost per unit of activity) for the Painting and Job Support activity
cost pools by filling in the table below. Round off all calculations to the nearest whole cent.

Painting Job Support
Production overhead
Office expense
Total
b) Prepare a report in good form of a job that involves painting 63 square metres and has direct
materials and direct labour cost of $2,070. The sales revenue from this job is $3,500.
a) Activity rates (costs divided by activity)

Painting Job Support
Production overhead $5.60 $134.38
Office expense 1.80 288.13
Total $7.40 $422.51
b) Overhead cost of the job.

Painting Job Support Total
Activity 63 1
Production overhead $352.80 $134.38 $487.18
Office expense 113.40 288.13 401.53

Total $466.20 $422.51 $888.71

Revenue:
Sales $3,500
Cost:
Direct Material and Labour $2,070
Painting 466.20
Job Support 422.51 2,958.71
Product (JOB) Margin $541.29

2.
Cabanos Company manufactures two products, Product C and Product D. The company estimated
it would incur $160,790 in manufacturing overhead costs during the current period. Overhead
currently is applied to the products on the basis of direct labour hours. Data concerning the current
period's operations appear below:

Product C Product D
Estimated volume 3,400 units 4,800 units
Direct labour hours per unit 1.40 hours 1.90 hours
Direct materials cost per unit $7.40 $12.70
Direct labour cost per unit $14.00 $19.00
Required:
a) Compute the predetermined overhead rate under the current method, and determine the unit
product cost of each product for the current year.
b) The company is considering using an activity-based costing system to compute unit product
costs for external financial reports instead of its traditional system based on direct labour hours.
The activity-based costing system would use three activity cost pools. Data relating to these
activities for the current period are given below:

Expected Activity
Activity Cost Pool Estimated Product C Product D Total
Overhead Cost
Machine setups $12,190 80 150 230
Purchase orders 79,200 730 920 1,650
General Factory 69,400 4,760 9,120 13,880
Total $160,790
Determine the unit product cost of each product for the current period using the activity-based
costing approach.
a) The expected total direct labour hours during the period are computed as follows:

Product C: 3,400 units x 1.4 hrs 4,760 hours
Product D: 4,800 units x 1.9 hrs 9,120 hours
Total direct labour hours 13,880 hours
Using these hours as a base, the predetermined overhead using direct labour hours would be:
Predetermined overhead rate = $160,790/13,880 DLHs = $11.58/DLH
Using this overhead rate, the unit product costs are:

Product C Product D
Direct Materials $7.40 $12.70
Direct Labour $14.00 $19.00
Manufacturing Overhead $16.22 $22.01
Total Unit Product Cost $37.62 $53.71
b) The overhead rates for each activity centre are as follows:

Estimated Overhead Expected Activity Overhead Rate
Cost
Machine setups $12,190 230 $53.00
Purchase orders 79,200 1,650 48.00
General Factory 69,400 13,880 5.00
The overhead cost charged to each product is:

Product C Product D
Activity Amount Activity Amount
Machine setups 80 $4,240 150 $7,950
Purchase orders 730 35,040 920 44,160
General Factory 4,760 23,800 9,120 45,600
Total overhead cost $63,080 $97,710
Overhead cost per unit:
Product C: $63,080/3,400 units = $18.55 per unit.

Product D: $97,710/4,800 units = $20.36 per unit.
Using activity-based costing, the unit product cost of each product would be:

Product C Product D
Direct Labour 14.00 19.00
Manufacturing Overhead 18.55 20.36

3.
(Appendix 7A) Superior Manufacturing Corporation has a traditional costing system in which it
applies manufacturing overhead to its products using a predetermined overhead rate based on
direct labour-hours (DLHs). The company has two products, D31X and U75X, about which it has
provided the following data:

D31X U75X
Direct materials per unit $30.00 $45.00
Direct labour per unit $1.10 $23.10
Direct labour hours per unit 0.15 2.15
Annual production 35,000 15,000
The company's estimated total manufacturing overhead for the year is $1,140,000 and the
company's estimated total direct labour-hours for the year is 35,000.
The company is considering using a variation of activity-based costing to determine its unit product
costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures Estimated Overhead Cost
Assembling products (DLHs) $200,000
Preparing batches (batches) 241,150
Axial milling (MHs) 800,000
Total $1,241,150

Activities D31X U75X Total
Assembling products 4,000 36,000 40,000
Preparing batches 560 1,295 1,855
Axial milling 1,000 1,000 2,000
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products
under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products
under activity-based costing system.
a. Traditional Manufacturing Overhead Costs

Predetermined overhead rate = $1,147,650 ÷ 35,000 DLHs = $32.79 per DLH
1,140,000/35,000 = 32.57

D31X U75X
Direct labour-hours 0.15 2.15
Predetermined overhead rate per $32.57 $32.57
DLH
Manufacturing overhead cost per $4.89 $70.03
unit
b. ABC Manufacturing Overhead Costs

Estimated Overhead Total Expected Activity Activity Rate
Cost
Assembling products $200,000 40,000 DLHs $5 per DLH
Preparing batches $241,150 1,855 batches $130 per batch
Milling $800,000 2,000 MHs $400 per MH
Overhead cost for D31X

Activity Rate Activity ABC Cost
Assembling products $5 per DLH 4,000 DLHs $20,000
Preparing batches $130 per batch 560 batches 72,800
Axial milling $400 per MH 1,000 MHs 400,000
Total $492,800
Annual production 35,000
Manufacturing overhead $14.08
cost per unit
Overhead cost for U75X

Preparing batches $130 per batch 1,295 batches 168,350
Axial milling $400 per MH 1,000 MHs 400,000
Total $748,350
cost per unit

4.
(Appendix 7A) Merger Manufacturing Corporation has a traditional costing system in which it
applies manufacturing overhead to its products using a predetermined overhead rate based on
direct labour-hours (DLHs). The company has two products, W82R and L48S, about which it has
provided the following data:

W82R L48S

Supporting direct labour (DLHs) $350,000
Setting up machines (setups) 201,960
Parts administration (part types) 960,000
Total $1,511,960
Activities W82R L48S Total
Supporting direct labour 10,000 13,000 23,000
Setting up machines 900 374 1,274
Part administration 924 1,000 1,924
Required:
a. Determine the unit product cost of each of the company's two products under the traditional
costing system.
b. Determine the unit product cost of each of the company's two products under activity-based
costing system.
a. Traditional Unit Product Costs


W82R L48S
Direct materials $12.00 $70.00
Direct labour 2.00 12.00
Manufacturing overhead (0.2 18.18 109.09
DLHs x $90.91 per DLH; 1.2 DLHs
x $90.91 per DLH)
Unit product cost $32.80 $191.09
b. ABC Unit Product Costs

Cost
Supporting direct labour $350,000 23,000 DLHs $15.22 per DLH
Setting up machines $201,960 1,274 setups $158.52 per setup
Part administration $960,000 1,924 part types $498.96 per part type
Overhead cost for W82R

Supporting direct labour $15.22 per DLH 10,000 DLHs $152,200
Setting up machines $158.52 per setup 900 setups 142,668
Part administration $498.96 per part type 924-part types 461,039
Total $755,907
Overhead cost for L48S

Supporting direct labour $15.22 per DLH 13,000 DLHs $197,860
Setting up machines $158.52 per setup 374 setups 59,286
Part administration $498.96 per part type 1,000 part types 498,960
Total $756,106

W82R L48S
Manufacturing overhead 15.12 50.41
($755,907 / 50,000 units;
$756,106 / 15,000 units)

5.
ABC Inc. produces a single product and manufactured 20,000 units last year. The company
budgeted the following overhead costs for the year:

Indirect Factory Wages: $ 50,000
Factory Utilities: $ 20,000
Factory Depreciation: $ 30,000

Direct manufacturing costs per unit are $50.

The company uses an activity-based costing system which compiles costs into 3 cost pools,
machining, milling and assembly.

The costs allocated to these activity cost pools break down as follows:

Usage:
Cost: Machining Milling Assembly
Indirect Factory Wages: 50% 30% 20%
Factory Utilities: 40% 40% 20%
Factory Depreciation: 10% 90% 0%

The following cost drivers are used for each of the following activity cost pools:
Machining: Machine Hours
Milling: Milling Hours
Assembly: Direct Labour Hours

Practical capacity for each of the cost pools are shown below:
Machining: 18,000 Machine Hours.
Milling: 40,000 Milling Hours.
Assembly: 14,000 Direct Labour Hours

Actual Usage was as follows:

Each unit requires a budgeted 2 Machine hours, 1 Milling Hour and 4 Direct Labour Hours.
The budgeted cost for each unit of product using activity-based costing is:
 $18 per unit.
 $16 per unit.
 $20 per unit.
 $9.25 per unit.
Budgeted cost per unit: ($2 × 2) + ($1.25 × 1) + ($1 × 4) = $9.25 per unit.

6.
Paul Company has two products: A and B. The company uses activity-based costing. The estimated
total cost and expected activity for each of the company's three activity cost pools are as follows

Expected Activity
Activity Cost Pool Estimated Cost Product A Product B Total
Activity 1 $25,000 600 100 700
Activity 2 20,200 380 150 530
Activity 3 13,000 510 120 630
The activity rate under the activity-based costing system for Activity 3 is closest to which of the
following?
 $20.63
 $28.87
 $58.40
 $70.45
$13,000/630= $20.63.

7.
Phoenix Company makes custom covers for air conditioning units for homes and businesses. The
company uses an activity-based costing system for its overhead costs. The company has provided
the following data concerning its annual overhead costs and its activity cost pools:

Overhead Costs:
Production overhead $100,000
Office expenses 50,000
Total $150,000
Distribution of Resource Consumption:

Activity Cost Pools
Making Covers Job Support Other Total
Production 40% 42% 18% 100%
overhead
Office expenses 12% 60% 28% 100%
costs. The amount of activity for the year is as follows:

Activity Cost Pool Annual Activity
Making covers 2,500 yards
Job support 200 jobs
Other Not applicable
Required:
a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table
below:

Production
overhead
Office expense
Total
b) Compute the activity rates (i.e., cost per unit of activity) for the Making Covers and Job Support
activity cost pools by filling in the table below:

Making Covers Job Support
Production overhead
Office expense
Total
c) Prepare a report in good form of a job that involves making 50 yards of covers and has direct
materials and direct labour cost of $1,500. The sales revenue from this job is $2,500.
a) First-stage allocation

Production $40,000 $42,000 $18,000 $100,000
overhead
Office expenses 6,000 30,000 14,000 50,000
Total $46,000 $72,000 $32,000 $150,000
Activity 2,500 metres 200 jobs
b) Activity rates (costs divided by activity)

Making Covers Job Support
Total $18.40 $360.00
c) Overhead cost of the job.

Making Covers Job Support Total
Activity 50 1
Production overhead $800.00 $210.00 $1,010.00
Office expense 120.00 150.00 270.00
Total $920.00 $360.00 $1,280.00
Overhead assigned can also be calculated using the total rate for each activity:

Revenue:
Sales $2,500
Cost:
Direct Material and Labour $1,500
Making Covers 920
Job Support 360 2,780
Product (JOB) Margin $(280)

8.
(Appendix 7A) Welk Manufacturing Corporation has a traditional costing system in which it applies
manufacturing overhead to its products using a predetermined overhead rate based on direct
labour-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided
the following data:

H16Z P25P

Supporting direct labour (DLHs) $552,000
Total $1,464,480

Activities H16Z P25P Total
Supporting direct labour 12,000 12,000 24,000
Setting up machines 864 240 1,104
Part administration 600 960 1,560
Required:
a. Determine the manufacturing overhead cost per unit of each of the company's two products
under the traditional costing system.
b. Determine the manufacturing overhead cost per unit of each of the company's two products
under activity-based costing system.
a. Traditional Manufacturing Overhead Costs


H16Z P25P
Direct labour-hours 0.40 1.20
Predetermined overhead rate per $61.02 $61.02
DLH
Manufacturing overhead cost per $24.41 $73.22
unit
b. ABC Manufacturing Overhead Costs

Cost
Supporting direct labour $552,000 24,000 DLHs $23 per DLH
Setting up machines $132,480 1,104 setups $120 per setup
Part administration $780,000 1,560 part types $500 per part type
Overhead cost for H16Z

Supporting direct labour $23 per DLH 12,000 DLHs $276,000
Setting up machines $120 per setup 864 setups 103,680
Part administration $500 per part type 600 part types 300,000
Total $679,680
cost per unit
Overhead cost for P25P

Supporting direct labour $23 per DLH 12,000 DLHs $276,000
Setting up machines $120 per setup 240 setups 28,800
Part administration $500 per part type 960 part types 480,000
Total $784,800
Manufacturing overhead $78,48
cost per unit

9.
When combining activities in an activity-based costing system, activities should be grouped

together at the same level. For example, batch-level activities should not be combined with unit-
level activities.
 True
 False

10.
Transaction drivers usually take more effort to record than duration drivers.
 True
 False

11.





Usage:





ABC's policy is to apply a mark-up of 300% on cost.

The budgeted selling price for each unit of product using activity-based costing is:
 $18 per unit.
 $16 per unit.
 $20 per unit.
 $274 per unit.
Machining activity rate (ACDR):

(50% × $100,000) + (40% × $25,000) + (10% × $25,000) = $62,500.
$62,500 / 31,250 machine hours = $2.00 per machine hour.

Milling activity rate (ACDR):

(30% × $100,000) + (40% × $25,000) + (90% × $25,000) = $62,500.
$62,500 / 25,000 milling hours = $2.50 per milling hour.

Assembly activity rate (ACDR):
(20% × $100,000) + (20% × $25,000) + (0% × $25,000) = $25,000.
$25,000 / 12,500 direct labour hours = $2.00 per direct labour hour.

Budgeted cost per unit: ($4 × 2) + ($2.50 × 1) + ($2 × 4) = $18.50 + $50 = $68.50 per unit.

Mark-up on cost = $68.50 × 3 = $205.50.

Selling price = $68.50 × 4 = $274.

12.
ABC Inc. produces a single product. In doing so, the company incurs overhead costs as follows:


machining, milling and assembly. The costs allocated to these activity cost pools break down as
follows: Usage:


The budgeted total cost of the Assembly activity is:
 $28,000
 $62,000
 $100,000
 $140,000
(20% × $100,000) + (20% × $40,000) + (0% × $60,000) = $28,000.

13.
Fotsco Company, a wholesale distributor, uses activity-based costing for its overhead costs. The
company has provided the following data concerning its annual overhead costs and its activity-
based costing system:

Overhead Costs:
Wages and salaries $500,000
Non-wage expenses 180,000
Total $680,000

Activity Cost Pools
Filling Orders Product Support Other Total
Wages and salaries 15% 75% 10% 100%
Non-wage 10% 70% 20% 100%
expenses

Filling orders 6,000 orders
Product support 30 products
Required:
Compute the activity rates (i.e., cost per unit of activity) for the Filling Orders and Product Support

Filling Orders Product Support
Wages and salaries
Non-wage expenses
Total
First-stage allocation

Filling Orders Product Support Other Total
Wages and $75,000 $375,000 $50,000 $500,000
salaries
Non-wage 18,000 126,000 36,000 180,000
expenses
Total $93,000 $501,000 $86,000 $680,000
Activity 6,000 orders 30 products
Activity rates (costs divided by activity):

Filling Orders Product Support
Wages and salaries $12.50 $12,500
Non-wage expenses 3.00 4,200
Total $15.50 $16,700

14.


Direct costs were $10.75 per unit.



Usage:






The budgeted selling price for each unit of product using activity-based costing is:
 $18 per unit.
 $16 per unit.
 $24.00 per unit.
 $27.75 per unit.

(50% × $50,000) + (40% × $20,000) + (10% × $30,000) = $36,000.


(30% × $50,000) + (40% × $20,000) + (90% × $30,000) = $50,000.

(20% × $50,000) + (20% × $20,000) + (0% × $30,000) = $14,000.

Budgeted cost per unit: $10.75 + [($2 × 2) + ($1.25 × 1) + ($1 × 4)] = $20.00 per unit.

Mark-up on cost = $20.00 × 0.2 = $4.00.

Selling price = $20.00 × 1.2 = $24.00.

15.
Setting up equipment is an example of an activity at which of the following levels?
 Unit-level activity.
 Batch-level activity.
 Product-level activity.
 Organization-sustaining activity.

16.
Activity-based-costing (ABC) charges products for the cost of capacity used, NOT for idle capacity.
Required:
a) The use of which activity level, budgeted (same as expected) or maximum capacity, is consistent
with ABC? Explain.
b) How might the use of ABC based on maximum capacity activity level enhance a firm's ability to
compete on price? Explain.
a) Use of maximum capacity activity level is consistent with the ABC method. It will ensure a
reasonably stable (if not constant) activity rate regardless of the expected level of activity. Since, by
definition, expected level of activity cannot exceed the maximum capacity, the resulting activity rate
is also likely to be lower. A lower activity rate when applied to a less-than-capacity expected or
actual activity level will ensure that cost of idle capacity is not charged to products.
b) Since the cost of idle capacity will not be charged to products, products are unlikely to be
overcosted. The fact that ABC generally achieves more accurate product costs (because it uses
multiple unit-level and non-unit-level cost drivers) also avoids undercosting or overcosting.
Accurate product cost information is a good starting point for competitive pricing. This is especially
important in diverse multiple product firms where product emphasis decisions are routinely made.

17.
Providing power to run processing equipment can be considered a:
 Unit level activities
 Batch level activities
 Product level activities
 Customer level activities

18.
Which of the following is NOT a limitation of activity-based costing?
 Maintaining an activity-based costing system is more costly than maintaining a traditional

direct labour-based costing system.
 Changing from a traditional direct labour-based costing system to an activity-based

costing system changes product margins and other key performance indicators used by
managers. Such changes are often resisted by managers.
 In practice, most managers insist on fully allocating all costs to products, customers, and
other costing objects in an activity-based costing system. This results in overstated costs.
 More accurate product costs may result in increasing the selling prices of some products.

19.

Indirect Factory Wages: $200,000

Direct manufacturing costs per unit are $50. The company uses an activity-based costing system
which compiles costs into 3 cost pools, machining, milling and assembly. The costs allocated to
these activity cost pools break down as follows:
Usage:


Assembly: 12,500 Direct Labour Hours.
Each unit requires a budgeted 2 Machine Hours, 1 Milling Hour and 4 Direct Labour Hours.
ABC's policy is to charge $90 per unit.
The mark-up per unit of product using traditional costing is (use budgeted machine hours as a
base):
 20%
 40%
 50%
 100%
Budgeted cost per unit: $50 + [($300,000 / 60,000) × 2] = $60 per unit.
Selling price is $90, so mark-up is $14 per unit.
Mark-up percentage is $30 / $60 or 50%.

20.
Ingersol Draperies makes custom draperies for homes and businesses. The company uses an
activity-based costing system for its overhead costs. The company has provided the following data
concerning its annual overhead costs and its activity cost pools:

Overhead Costs:
Production overhead $160,000
Office expense 160,000
Total $320,000

Activity Cost Pools
Making Drapes Job Support Other Total
Production 35% 45% 20% 100%
overhead
Office expenses 10% 65% 25% 100%

Making drapes 2,000 metres
Job support 160 jobs
Required:
a) Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table
below:

Production
overhead
Office expense
Total
b) Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support

Making Drapes Job Support
Production overhead
Office expense
Total
c) Compute the total overhead assigned to a job that involves making 71 metres of drapes.

a) First-stage allocation

Production $56,000 $72,000 $32,000 $160,000
overhead
Office expenses 16,000 104,000 40,000 160,000
Total 72,000 176,000 72,000 $320,000
Activity 2,000 metres 160 jobs
b) Activity rates (costs divided by activity)

Making Drapes Job Support
Total $36.00 $1,100
c) Overhead cost of the job.

Making Drapes Job Support Total
Activity 71 1
Production overhead $1,988.00 $450.00 $2,438.00
Office expense 568.00 650.00 1,218.00
Total $2,556.00 $1,100.00 $3,656.00

21.


follows: Usage:


The budgeted total cost of the Machining activity is:
 $40,000
 $72,000
 $100,000
 $140,000
(50% × $100,000) + (40% × $40,000) + (10% × $60,000) = $72,000.

22.





Usage:




The cost per unit of product using traditional costing is (use budgeted machine hours as a base):
 $71
 $50
 $57
 $30
Budgeted cost per unit: $25 + [($150,000 / 60,000) × 2] = $30 per unit.

23.
Activity rates in activity-based costing are computed by dividing costs from the first-stage
allocations by the activity measure for each activity cost pool.
 True
 False

24.
Creating homogeneous cost pools is not a necessary part of the ABC implementation process.
 True
 False
The creation of homogeneous cost pools is part of implementing ABC costing.

25.
The first-stage allocation in activity-based costing is the process by which overhead costs are
assigned to products before they are assigned to customers.
 True
 False

26.
What is a duration driver?
 A simple count of the number of times an activity occurs.
 An activity measure that is used for the life of the company.
 A measure of the amount of time required to perform an activity.
 An activity measure that is used for the life of an activity-based costing system.

27.
A single cost driver is all that is required for ABC costing.
 True
 False
ABC costing requires multiple cost drivers.

28.
Activities such as heating the factory, cleaning executive offices, providing a computer network
would be classified as:
 Unit level activities
 Batch level activities
 Organization sustaining activities

29.
Which of the following types of costs present the greatest difficulty in efforts to trace them to
products and services?
 Unit-level costs
 Batch-level costs
 Product/service-level costs
 Organization-sustaining costs

30.


Usage:


The budgeted overhead rate to be charged for the Milling activity was:
 $2 per machine hour
 $1 per machine hour
 $2.50 per milling hour
 $7 per milling hour
(30% × $100,000) + (40% × $40,000) + (90% × $60,000) = $100,000.


31.
ABC Inc. produces a single product and manufactured 20,000 units and sold 10,000 units last year.
ABC had a practical production capacity of 20,000 units per year. The company budgeted the
following overhead costs for the year:


Usage:


Assembly: Direct Labour Hours.
Practical and expected capacity for each of the cost pools are shown below:
ABC's cost per unit using traditional costing was:
 $15
 $63
 $58
 $108

(50% × $140,000) + (40% × $50,000) + (10% × $10,000) = $91,000.

(30% × $140,000) + (40% × $50,000) + (90% × $10,000) = $61,000.

(20% × $140,000) + (20% × $50,000) + (0% × $10,000) = $38,000.

Budgeted cost per unit: $100 + [($91,000 / 45,500) × 2] + [($71,000 / 35,500) × 1] + [($38,000 /
38,000) × 4] = $100 + $2 + $2 + $4 = $108 per unit.

32.
Organization-sustaining activities are carried out regardless of how many units are made, how
many batches are run, or how many different products are made.
 True
 False

33.
In activity-based costing, a plant-wide overhead rate is used to apply overhead to products.
 True
 False

34.
(Appendix 7A) Why would an activity-based costing system that is designed for internal decision
making NOT conform to generally accepted accounting principles?
 Some manufacturing costs (i.e., the costs of idle capacity and organization-sustaining
costs) will not be assigned to products.
 Some non-manufacturing costs are assigned to products.
 First-stage allocations may be based on subjective interview data.
 All of the above.

35.
Flyer Corporation manufactures two products, Product A and Product B. Product B is of fairly recent
origin, having been developed as an attempt to enter a market closely related to that of Product A.
Product B is the more complex of the two products, requiring three hours of direct labour time per
unit to manufacture, compared to one and one-half hours of direct labour time for Product A.
Product B is produced on an automated production line.
Overhead is currently assigned to the products on the basis of direct labour hours. The company
estimated it would incur $396,000 in manufacturing overhead costs and produce 5,500 units of
Product B and 22,000 units of Product A during the current year. Unit costs for materials and direct
labour are:

Product A Product B
Direct materials $9 $20
Direct labour $7 $15
Required:
a) Compute the predetermined overhead rate under the current method of allocation and
determine the unit product cost of each product for the current year.
b) The company's overhead costs can be attributed to four major activities. These activities and the
amount of overhead cost attributable to each for the current year are given below:

Expected Activity
Activity Cost Pool Estimated Product A Product B Total
Overhead Cost
Machine setups $170,000 700 1,000 1,700
required
Purchase orders 37,000 300 200 500
issued
Machine hours 91,000 4,000 9,00 13,000
required
Maintenance 98,000 400 600 1,000
requests issued
Total $396,000
Using the data above and an activity-based costing approach, determine the unit product cost of
each product for the current year.
a) The company expects to work 49,500 direct labour hours during the current year, computed as
follows:

Product A: 22,000 units x 1.5 hrs 33,000 hours
Product B: 5,500 units x 3.0 hrs 16,500 hours
Total direct labour hours 49,500 hours
Using these hours as a base, the predetermined overhead using direct labour hours would be:
Predetermined overhead rate = $396,000/49,500 DLHs = $8.00/DLH

Using this overhead rate, the unit product cost of each product would be:

Product A Product B
Direct Materials $9 $20
Direct Labour 7 15
Manufacturing Overhead:
Product B-1.5 hour 12
Product H-three hours 24
Total $28 $59
b) The overhead rates are computed as follows:

Activity Cost Pool Estimated Overhead Total Expected Activity Rate
Cost
Machine setups $170,000 1,700 $100/setup
Purchase orders 37,000 500 74/order
Machine hours 91,000 13,000 7/hour
Maintenance requests 98,000 1,000 98/request
Total $396,000
The overhead cost attributable to each product is:

Product B Product H
Activity Amount Activity Amount
Machine setups, 700 $70,000 1,000 $100,000
$100.00/setup
Purchase orders, 300 22,200 200 14,800
$74.00/order
Machine hours, 4,000 28,000 9,000 63,000
$7.00/hour
Maintenance request, 400 39,200 600 58,800
at $98.00/request
$159,400 $236,600
Overhead cost per unit:
Product A: $159,400/22,000 units = $7.2455/unit.

Product B: $236,600/5,500 units = $43.0182/unit.
Using activity-based costing, the unit product cost of each product would be:

Product A Product B
Direct Labour 7.0000 15.0000
Manufacturing Overhead 7.2455 43.0182

36.
The third step in implementing an ABC system is:
 Prepare management reports
 Calculate activity rates
 Identify and define activities, activity cost pools, and activity measures.
 Assign overhead costs to activity cost pools.

37.
Changing a cost accounting system is likely to meet with little resistance in an organization since it
is a technical matter of little interest to individuals outside of the accounting department.
 True
 False

38.
Activities that are performed each time a batch is handled or processed, regardless of how many
units are in the batch, it known as:
 Unit level activities
 Batch level activities
 Product level activities

39.
(Appendix 7A) Torri Manufacturing Corporation has a traditional costing system in which it applies
labour-hours (DLHs). The company has two products, B40W and C63J, about which it has provided
the following data:

B40W C63J

Assembling products (DLHs) $1,216,000
Milling (MHs) 960,000
Total $2,656,000

Activities B40W C63J Total
Assembling products 28,000 36,000 64,000
Preparing batches 2,304 2,496 4,800
Milling 1,088 2,112 3,200
Required:
a. Determine the unit product cost of each of the company's two products under the traditional
costing system.
b. Determine the unit product cost of each of the company's two products under activity-based
costing system.
a. Traditional Unit Product Costs


B40W C63J
Manufacturing overhead (0.8 33.20 99.60
DLHs x $4150 per DLH; 2.4 DLHs
x $41.50 per DLH)
b. ABC Unit Product Costs

Cost
Assembling products $1,216,000 64,000 DLHs $19 per DLH
Preparing batches $480,000 4,800 batches $100 per setup
Milling $960,000 3,200 MHs $300 per MH
Overhead cost for B40W

Preparing batches $100 per setup 2,304 batches 230,400
Milling $300 per MH 1,088 MHs 326,400
Total $1,088,800
Overhead cost for C63J

Preparing batches $100 per setup 2,496 batches 249,600
Milling $300 per MH 2,112 MHs 633,600
Total $1,567,200

B40W C63J
Manufacturing overhead 31.11 104.48
($1,088,800 / 35,000 units;
$1,567,200 / 15,000 units)

40.
Selena Company has two products: A and B. The company uses activity-based costing. The
estimated total cost and expected activity for each of the company's three activity cost pools are as
follows:

Expected Activity
Activity 1 $19,000 1,000 300 1,300
Activity 2 12,000 400 200 600
Activity 3 23,000 853 400 1,253
following? (Round your final answer to 2 decimal places.)
 $18.53
 $18.36
 $46.33
 $65.00
23,000/1,253 = 18.36.

41.


Usage:


The budgeted selling price for each unit of product using activity based costing is:
 $68.50 per unit.
 $74.00 per unit.
 $205.50 per unit.
 $274.00 per unit.

(50% × $100,000) + (40% × $40,000) + (10% × $60,000) = $72,000.

(30% × $100,000) + (40% × $40,000) + (90% × $60,000) = $100,000.

(20% × $100,000) + (20% × $40,000) + (0% × $60,000) = $28,000.
Budgeted cost per unit: ($4 × 2) + ($2.50 × 1) + ($2 × 4) = $18.50 + $50.00 = $68.50 per unit.

Mark-up on cost = $68.50 × 3 = $205.50.

Selling price = $68.50 × 4 = $274.00.

42.
In general, duration drivers are more accurate measures of the consumption of resources than
transaction drivers.
 True
 False

43.
The process by which activity rates are used to apply costs to products and customers in activity-
based costing is referred to as a first stage allocation.
 True
 False
The process by which overhead costs are assigned to overhead cost pools in an activity-based
costing system is known as a first stage allocation process.

44.
In the second-stage allocation in activity-based costing, activity rates are used to apply costs to
products, customers, and other cost objects.
 True
 False

45.




Usage:




The budgeted full cost per unit of product using ABC costing would be:
 $15
 $93
 $98
 $38

(50% × $140,000) + (50% × $40,000) + (10% × $10,000) = $91,000.

(30% × $140,000) + (25% × $40,000) + (90% × $10,000) = $61,000.

(20% × $140,000) + (25% × $40,000) + (0% × $10,000) = $38,000.

Budgeted cost per unit: $85 + [($91,000 / 45,500) × 2] + [($61,000 / 61,000) × 1] + [($38,000 / 18,500)
× 4] = $85 + $4 + $1 + $8 = $98 per unit.

46.
Human resource management is an example of an activity at which of the following levels?
 Unit-level activity.
 Product-level activity.
 Batch-level activity.
 Organization-sustaining activity.

47.
Costs computed using ABC costing are usually more accurate than those computed using
traditional costing.
 True
 False
ABC costs are usually more accurate than traditional unit costs since more cost pools are used.
This allows better traceability of overhead costs to cost objects.

48.
Which of the following statements about overhead allocation based on volume alone is correct?
 It is a key aspect of the activity-based costing model.
 It will systematically overcost high-volume products and undercost low-volume products.
 It will systematically overcost low-volume products and undercost high-volume products.
 It must be used for external financial reporting.

49.


follows: Usage:


The budgeted total cost of the Milling activity is:
 $40,000
 $62,000
 $100,000
 $140,000
(30% × $100,000) + (40% × $40,000) + (90% × $60,000) = $100,000.

50.
Matt Company uses activity-based costing. The company has two products: A and B. The annual
production and sales of Product A is 5,000 units and of Product B is 7,000 units. There are three
activity cost pools, with estimated total cost and expected activity as follows:

Expected Activity
Activity 1 $30,000 280 420 700
Activity 2 36,000 1,000 280 1,280
Activity 3 95,000 1,800 2,500 4,300
The cost per unit of Product B under activity-based costing is closest to which of the following? (Do
not round your intermediate calculations. Round your final answer to 2 decimal places.)
 $15.60
 $11.59
 $16.45
 $13.50
(($30,000/700) * 420 + ($36,000/1,280) * 280 + ($95,000/4,300) * 2,500)/ 7,000 = ($18,000 + $7,875

+ $55,232.56)/ 7,000 = $11.59.

51.





Usage:




 $15
 $93
 $113
 $38

(50% × $140,000) + (50% × $40,000) + (10% × $10,000) = $91,000.

(30% × $140,000) + (25% × $40,000) + (90% × $10,000) = $61,000.


(20% × $140,000) + (25% × $40,000) + (0% × $10,000) = $38,000.

19,000) × 4] = $100 + $4 + $1 + $8 = $113/unit.

52.
Fife & Jones PLC, a consulting firm, uses an activity-based costing in which there are three activity
cost pools. The company has provided the following data concerning its costs and its activity-based
costing system:

Costs:
Travel expenses 100,000
Other expenses 140,000
Total $780,000

Activity Cost Pools
Working on Business Other Total
Engagements Development
Wages and 50% 20% 30% 100%
salaries
Travel expenses 60% 30% 10% 100%
Other expenses 35% 25% 40% 100%
Required:
a) How much cost, in total, would be allocated to the Working On Engagements activity cost pool?
b) How much cost, in total, would be allocated to the Business Development activity cost pool?
c) How much cost, in total, would be allocated to the Other activity cost pool?
All three parts can be answered using a first-stage allocation of costs.

Working on Business Other Total
Engagements Development
Wages and $270,000 $108,000 $162,000 $540,000
salaries
Travel expenses 60,000 30,000 10,000 100,000
Other expenses 49,000 35,000 56,000 140,000
Total $379,000 $173,000 $228,000 $780,000
a) $379,000
b) $173,000
c) $228,000

53.





Usage:


 $15
 $93
 $103
 $38

(50% × $140,000) + (50% × $40,000) + (10% × $10,000) = $91,000.

(30% × $140,000) + (25% × $40,000) + (90% × $10,000) = $61,000.

(20% × $140,000) + (25% × $40,000) + (0% × $10,000) = $38,000.

Budgeted cost per unit: $90 + [($91,000 / 45,500) × 2] + [($61,000 / 61,000) × 1] + [($38,000 / 19,000)
× 4] = $90 + $4 + $1 + $8 = $103 per unit.

54.


Usage:


Assembly: Direct Labour Hours.
Practical and expected capacity for each of the cost pools are shown below:
ABC's budgeted cost of goods sold using traditional costing was:
 $150,000
 $630,000
 $580,000
 $700,000

(50% × $140,000) + (40% × $50,000) + (10% × $10,000) = $91,000.

(30% × $140,000) + (40% × $50,000) + (90% × $10,000) = $61,000.

(20% × $140,000) + (20% × $50,000) + (0% × $10,000) = $38,000.

38,000) × 4] = $50 + $2 + $2 + $4 = $58

Ending Finished Goods Inventory = $58 × 10,000 units = $580,000

55.
Mike Kyekyeku is a sole proprietorship that provides consulting and tax preparation services to its
clients. Mike charges a fee of $100 per hour for each service and can devote a maximum of 4,000
hours annually to his clients. He reported the following revenues and expenses for 2014:

Revenue $400,000
Expenses (All overhead costs):
Secretarial support $84,000
Supplies 72,000
Computer costs, etc. 48,000 204,000
Net income (loss) $196,000
Being an accountant, Mike kept good records of the following data for 2014:
(i). Revenue:

Tax preparation $130,000
Consulting 270,000
Total $400,000
(ii).
ACTIVITY LEVEL
Overhead Cost Cost Driver Tax Consulting Total
Secretarial support Number of clients 72 48 120
Supplies Tr Answer actions 200 300 500
with clients
Computer costs, Computer hours 1,000 600 1,600
etc.
Required:
a. Should Mike emphasize one service more than the other if Mike were to allocate all the overhead
costs using direct-labours as the only overhead cost driver (1,300 for Tax and 2,700 for Consulting)?
Support your decision with the relevant calculations and/or analysis.
b. Identify each of the three cost drivers as either unit-level, batch-level, product-level, customer-
level, or organization-sustaining.
c. How might Mike's product/service emphasis decision in Part a above be altered if he were to
allocate all the overhead costs using activity-based costing and the three cost drivers, that is,
number of clients, number of transactions with clients, and computer hours? Show all your
supporting calculations and/or analysis, including any necessary explanation.
a. Decision: No
Analysis and/or calculations:
Preliminary analysis:
The overhead allocation rate = $51 per DLH, i.e. $204,000/(1,300 + 2,700)

Tax Consulting
Revenue $130,000 $270,000
Expenses:
Allocations at $51 per DLH ($51 x 66,300 137,700
1,300; $51 x 2,700) *
Profit $63,700 $132,300
Number of DLHs 1,300 2,700
Profit per DLH: ($63,700/1,300; $49** $49**
$132,300/2,700)
The two services generate the same profit for each hour of Mike's scarce time. Note: Since the
$100 billing rate per DLH is the same, the decision can be based only on allocated cost per DLH
($51) which is the same for both services
* Alternatively, allocate in proportion to Tax and Consulting at 32.5% and 67.5%, respectively.
** Same as the $100 billing rate less the $51 allocation rate.
b. Number of clients: Customer-level

Number of transactions with clients: Unit-level
Computer hours: Unit-level
c. Preliminary analysis (ABC)

Tax Consulting
Revenue $130,000 $270,000
Expenses:
Allocations
Secretarial support (60%, 40%) * 50,400 33,600
Supplies (40%, 60%) ** 28,800 43,200
Computer costs, etc. (62.5%, 30,000 18,000
37.5%) ***
$109,200 $94,800
Profit $20,800 $175,200
Profit per DLH: ($20,800/1,300; $16.00 $64.89
$175,200/2,700)
Decision:
Consulting should receive greater emphasis since every hour of Mike's scarce time generates a
profit of $64.89 compared to $16.00 for Tax. (Note: The decision can be based only on the total
allocated cost per DLH (that is, $109,200/1,300 = $84.00 for Tax; $94,800/2,700 = $35.11 for
Consulting) since the billing rate per DLH of $100 is the same for both services. Alternatively, base
decision on total allocated cost for each service together with an explanation that consulting has
less allocated cost and also fewer number of direct labour hours.
* same as using activity rate of $700 per client (i.e., $84,000/120)

** same as using activity rate of $144 per transactions (i.e., $72,000/500)
*** same as using activity rate of $30 per computer hour (i.e., $48,000/1,600)

56.


Usage:


The budgeted selling price for each unit of product using activity based costing is:
 $18 per unit.
 $16 per unit.
 $20 per unit.
 $205.50 per unit.

(50% × $100,000) + (40% × $40,000) + (10% × $60,000) = $72,000.

(30% × $100,000) + (40% × $40,000) + (90% × $60,000) = $100,000.

(20% × $100,000) + (20% × $40,000) + (0% × $60,000) = $28,000.

Budgeted cost per unit: ($4 × $2) + ($2.50 × 1) + ($2 × 4) = $18.50 + $50.00 = $68.50 per unit.
Mark-up on cost = $68.50 × 2 = $137.00.
Selling price = $68.50 × 3 = $205.50.

57.
In activity-based costing, as in traditional costing systems, non-manufacturing costs are not

assigned to products.
 True
 False

58.
Costs incurred at which of the following activity levels should NOT be allocated to products for
decision-making purposes?
 Unit-level activities.
 Batch-level activities.
 Product-level activities.
 Organization-sustaining activities.

59.
Which of the following is not part of the implementation process with respect to ABC?
 Separate manufacturing and non-manufacturing costs.
 Prepare management reports.
 Create homogeneous cost pools.
 Identify and define activities and cost pools.
Cost pools may contain both manufacturing and non-manufacturing costs so there is no need to
separate the two.
Bridget Company uses activity-based costing. The company has two products: A and B. The annual
production and sales of Product A is 1,500 units and of Product B is 3,000 units. There are three
activity cost pools, with estimated total cost and expected activity as follows:

Expected Activity
Activity 1 $10,000 420 350 770
Activity 2 12,000 120 420 540
Activity 3 50,000 490 1,162 1,652

60.
The cost per unit of Product A under activity-based costing is closest to which of the following?
 $6.00
 $8.63
 $15.30
 $13.80
(($10,000/770) * 420 + ($12,000/540) * 120 + ($50,000/1,652) * 490) / 1,500 = $15.30.

61.
The cost per unit of Product B under activity-based costing is closest to which of the following?
 $24.10
 $16.35
 $35.38
 $31.90
(($10,000/770) * 350 + ($12,000/540) * 420 + ($50,000/1,652) * 1,162)/ 3,000 = $16.35.
Dideda Company uses an activity-based costing system with three activity cost pools. The company
has provided the following data concerning its costs and its activity-based costing system:

Costs:
Selling and administrative expenses 250,000
Total $590,000

Activity Cost Pools
Order Size Customer Support Other Total
Manufacturing 25% 50% 25% 100%
overhead
Selling and 60% 30% 10% 100%
administrative
expenses
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
You have been asked to complete the first-stage allocation of costs to the activity cost pools.

62.
How much cost, in total, would be allocated in the first-stage allocation to the Order Size activity
cost pool?
 $150,000
 $235,000
 $255,000
 $360,000
340,000 * 0.25 + 250,000 * 0.6 = $235,000.

63.
How much cost, in total, would be allocated in the first-stage allocation to the Customer Support
activity cost pool?
 $120,000
 $255,000
 $245,000
 $390,000
340,000 * 0.5 +250,000 * 0.3 = $245,000.

64.
How much cost, in total, should NOT be allocated to orders and customer support in the second
stage of the allocation process if the activity-based costing system is used for internal decision
making?
 $0
 $60,000
 $110,000
 $120,000
$340000 * 0.25 + $250,000 * 0.10 = $110,000.
Diehl Company uses an activity-based costing system with three activity cost pools. The company

Costs:
Total $580,000

Activity Cost Pools
overhead
Selling and 60% 30% 10% 100%
administrative
expenses

65.
cost pool?
 $29,000
 $84,000
 $108,000
 $348,000
$480,000 * 0.10 + $100,000 * 0.60 = $108,000.

66.
activity cost pool?
 $116,000
 $304,500
 $428,000
 $438,000
$480,000 * 0.85 + $100,000 * 0.30 = $438,000.

67.
How much cost, in total, should not be allocated to orders and customer support in the second
making?
 $0
 $58,000
 $34,000
 $116,000
$480,000 * 0.05 + $100,000 * 0.10 = $34,000.
Dierich Company uses an activity-based costing system with three activity cost pools. The company

Costs:
Total $820,000

Activity Cost Pools
overhead
Selling and 60% 20% 20% 100%
administrative
expenses

68.
cost pool?
 $123,000
 $222,000
 $307,500
 $492,000
600,000 * .15 + 220,000 * .6 = $222,000.

69.
activity cost pool?
 $164,000
 $389,500
 $494,000
 $615,000
600,000 * .75 + 220,000 * .2 = $494,000.

70.
How much cost, in total, should not be allocated to orders and customer support in the second
making?
 $0
 $82,000
 $104,000
 $164,000
600,000 * .1 + 220,000 * .2 = $104,000.
Davis Company uses an activity-based costing system in which there are three activity cost pools.
The company has provided the following data concerning its costs and its activity-based costing
system:

Costs:
Total $600,000

Activity Cost Pools
overhead
Selling and 50% 30% 20% 100%
administrative
expenses
You have been asked to complete the first-stage allocation of the costs to the activity cost pools.

71.
cost pool?
 $210,000
 $240,000
 $255,000
 $300,000
400,000 * .35 + 200,000 * .5 = $240,000.

72.
activity cost pool?
 $180,000
 $255,000
 $280,000
 $330,000
400,000 * .55 + 200,000 * .3 = $280,000.

73.
How much cost, in total should not be allocated to orders and customer support in the second
making?
 $0
 $60,000
 $80,000
 $120,000
400,000 * .1 = 200,000 * .2 = $80,000.
Furniture Company uses an activity-based costing system in which there are three activity cost
pools. The company has provided the following data concerning its costs and its activity-based
costing system:

Costs:
Total $900,000

Activity Cost Pools
overhead
Selling and 40% 45% 15% 100%
administrative
expenses
You have been asked to complete the first-stage allocation of the costs to the activity cost pools.

74.
cost pool?
 $210,000
 $240,000
 $390,000
 $300,000
600,000 * .45 + 300,000 * .4 = $390,000.

75.
activity cost pool?
 $280,000
 $355,000
 $380,000
 $435,000
600,000 * .5 + 300,000 * .45 = $435,000.

76.
How much cost, in total should not be allocated to orders and customer support in the second
making?
 $0
 $75,000
 $80,000
 $120,000
600,000 * .0.05 + 300,000 * .15 = $75,000.
Escau Company is a wholesale distributor that uses activity-based costing for all of its overhead
costs. The company has provided the following data concerning its annual overhead costs and its
activity-based costing system:

Overhead costs:
Total $500,000

Activity Cost Pools
Filling Orders Customer Support Other Total
The activity measures for the activity cost pools for the year are as follows:

Activity Cost Pool Activity
Customer support 20 customers

77.
What would be the total overhead cost per order according to the activity-based costing system,
rounded to the nearest whole cent? In other words, what would be the overall activity rate for the
Filling Orders activity cost pool?
 $48.00
 $43.33
 $52.00
 $56.67
($400,000 * 0.25 + $100,000 * 0.30)/ 3,000 = $43.33.

78.
What would be the total overhead cost per customer according to the activity-based costing
system, rounded to the nearest whole dollar? In other words, what would be the overall activity rate
for the Customer Support activity cost pool?
 $14,500
 $12,600
 $13,650
 $14,400
($400,000 * 0.60 + $100,000 * 0.50) /20 = $14,500.

79.
To the nearest whole dollar, how much wages and salaries cost would be allocated to a customer
who placed eight orders in a year?
 $7,392
 $9,548
 $12,267
 $14,784
($100,000/3,000) * 8 + ($240,000/ 20) * 1= 12,267.
Escalona Company is a wholesale distributor that uses activity-based costing for all of its overhead
costs. The company has provided the following data concerning its annual overhead costs and its
activity-based costing system:

Overhead costs:
Total $780,000

Activity Cost Pools
The amount of activity for the year is as follows:


80.
 $273.00
 $292.50
 $302.00
 $312.00
(580,000 * .4 + 200,000 * .35)/1,000 = $302.

81.
 $11,700
 $12,350
 $12,667
 $13,000
(580,000 * .5 + 200,000 * .45)/30 = $12,667.

82.
who placed four orders in a year? Do not round intermediate calculations.
 $7,124
 $8,859
 $10,595
 $14,248
Cost assigned = $580,000 * .4 = 232,000 and 580,000 * .5 = $290,000: ($232,000/1,000) * 4 +

($290,000/30) * 1 = $10,595.
Tory Company is a wholesale distributor that uses activity-based costing for all of its overhead costs.
The company has provided the following data concerning its annual overhead costs and its activity-

Overhead costs:
Total $800,000

Activity Cost Pools


83.
 $18.50
 $62.86
 $27.75
 $37.00
($600,000 * 0.30 + $200,000 * 0.20)/ 3,500 = $62.86.

84.
 $11,100
 $12,950
 $13,714
 $14,714
($600,000 * 0.60 + $200,000 * 0.60)/ 35 = 13,714.

85.
who placed eight orders in a year?
 $7,474
 $9,191
 $10,697
 $14,948
$180,000/3,500 * 8 + 360,000/35 * 1 = 10,697.

Note the numerator in each fraction represents the cost assigned to each pool for wages and
salaries.
Acton Company has two products: A and B. The annual production and sales of Product A is 800
units and of Product B is 500 units. The company has traditionally used direct labour hours as the
basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labour hours
per unit, and Product B requires 0.2 direct labour hours per unit. The total estimated overhead for
next period is $92,023.
The company is considering switching to an activity-based costing system for the purpose of
computing unit product costs for external reports. The new activity-based costing system would
have three overhead activity cost pools-Activity 1, Activity 2, and General Factory-with estimated
overhead costs and expected activity as follows:

Expected Activity
Overhead Cost
Activity 1 $14,487 500 600 1,100
Activity 2 64,800 2,500 500 3,000
General Factory 12,736 240 100 340
Total $92,023
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labour
hours.)

86.
The predetermined overhead rate under the traditional costing system is closest to which of the
following?
 $13.17
 $21.60
 $37.46
 $270.66
$92,023/(800 * .3hrs + 500 * .2hrs) = $270.66.

87.
The overhead cost per unit of Product B under the traditional costing system is closest to which of
the following?
 $2.63
 $4.32
 $7.49
 $54.13
$270.66 * .2 hrs = $54.13.

88.
The predetermined overhead rate (i.e., activity rate) for Activity 1 under the activity-based costing
system is closest to which of the following?
 $13.17
 $24.15
 $28.97
 $83.66
$14,487/1,100 = $13.17.

89.
The overhead cost per unit of Product A under the activity-based costing system is closest to which
of the following?
 $11.24
 $70.79
 $81.20
 $86.97
[(14,487/1,100) * 500 + (64,800/3,000) * 2,500 + (12,736/340) * 240]/800 units = $86.97.
Addy Company has two products: A and B. The annual production and sales of Product A is 1,700
units and of Product B is 1,100 units. The company has traditionally used direct labour hours as the
basis for applying all manufacturing overhead to products. Product A requires 0.3 direct labour hours
per unit, and Product B requires 0.6 direct labour hours per unit. The total estimated overhead for
next period is $98,785.
have three factory overhead activity cost pools-Activity 1, Activity 2, and General Factory-with
estimated overhead costs and expected activity as follows:

Expected Activity
Overhead Cost
Activity 1 $40,000 1,220 600 1,820
Activity 2 16,700 1,700 150 1,850
General Factory 51,100 590 690 1,280
Total $107,800
hours.)

90.
The predetermined overhead rate under the traditional costing system is closest to which of the
following?
 $9.15
 $19.08
 $43.48
 $84.43
$98,785/(1,700 * .3hrs + 1,100 * .6) = $84.43.

91.
The overhead cost per unit of Product B under the traditional costing system is closest to which of
the following?
 $5.49
 $11.45
 $26.09
 $50.66
$84.43 * .6 hrs = $50.66.

92.
(Appendix 7A) The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-
based costing system is closest to which of the following?
 $9.03
 $10.23
 $51.99
 $86.93
$16,700/ 1,850 = $9.03.

93.
The overhead cost per unit of Product B under the activity-based costing system is closest to which
of the following?
 $26.09
 $35.28
 $37.16
 $38.26
($40,000/ 1,820 * 600 + $16,700/ 1,850 * 150 + $51,100/1,280 * 690)/ 1,100 Units = $38.26.
Abel Company uses activity-based costing. The company has two products: A and B. The annual
production and sales of Product A is 200 units and of Product B is 400 units. There are three activity
cost pools, with estimated costs and expected activity as follows:

Expected Activity
Activity 1 $16,660 600 100 700
Activity 2 18,450 1,100 700 1,800
Activity 3 9,731 60 160 220

94.
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing
system is closest to which of the following?
 $10.25
 $16.77
 $24.91
 $26.36
$18,450/1,800 = $10.25.

95.
The cost per unit of Product B is closest to which of the following?
 $17.69
 $41.58
 $74.73
 $81.53
[(16,660/700) * 100 + (18,450/1,800) * 700 + (9,731/220) * 160]/400 = $41.58.

96.
The cost per unit of Product A is closest to which of the following?
 $27.91
 $56.38
 $141.04
 $70.52
[(16,660/700) * 600 + (18,450/1,800) * 1100 + (9,731/220) * 60]/200 = $141.04.
Accola Company uses activity-based costing. The company has two products: A and B. The annual
production and sales of Product A is 1,100 units and of Product B is 800 units. The direct production
costs (material and labour) for Product A are $110,200 and for B is $73,000. There are three activity
cost pools for overhead, with estimated costs and expected activity as follows:

Expected Activity
Activity 1 $18,270 620 530 1,150
Activity 2 40,000 2,000 300 2,300
Activity 3 48,796 420 400 820

97.
The activity rate for Activity 3 is closest to which of the following?
 $26.67
 $59.51
 $116.18
 $119.72
$48,796/820 = $59.51.

98.
The overhead cost per unit of Product A is closest to which of the following?
 $22.70
 $47.89
 $57.20
 $63.30
(($18,270/ 1,150) * 620 + ($40,000/2,300) * 2,000 + ($48,796/ 820) * 420)/ 1,100 = $63.30.

99.
The total annual production cost for Product B is closest to which of the following?
 $37,816
 $110,440
 $65,231
 $70,000
($73,000 + ($18,270/1,150) * 530 + ($40,000/2,300) * 300 + ($48,796/ 820) * 400) = $110,440.
Arthur Company has two products: S and D. The company uses activity-based costing and has
prepared the following analysis, showing the estimated total overhead cost and expected activity for
each of its three activity cost pools:

Expected Activity
Activity Cost Pool Estimated Cost Product S Product D Total
Activity 1 $20,000 100 400 500
Activity 2 14,600 500 250 750
Activity 3 90,000 300 2,700 3,000
The annual production and sales of Product S is 4,547 units. The annual production and sales of
Product D is 7,913. Direct costs/unit for each product are as follows:

Product S Product D
Direct Material $1.50 $1.20
Direct Labour $2.00 $2.50

100.
following?
 $29.32
 $30.00
 $33.33
 $41.53
$90,000/3,000 = $30.

101.
The overhead cost per unit of Product S under activity-based costing is closest to which of the
following? Do not round intermediate calculations.
 $1.83
 $1.98
 $5.00
 $10.00
[(20,000/500) * 100 + (14,600/750) * 500 + (90,000/3,000) * 300]/4,547 = $5.0.

102.
The total production cost per unit of Product D under activity-based costing is closest to which of
the following?
 $16.15
 $12.87
 $16.37
 $16.57
$1.20 + $2.50 + (20,000/500 * 400 + 14,600/750 * 250 + 90,000/3,000 * 2,700)/7,913 = $16.57.
Monson Company has two products: G and P. The company uses activity-based costing and has
prepared the following analysis, showing the estimated total overhead cost, and expected activity for

Expected Activity
Activity Cost Pool Estimated Cost Product G Product P Total
Activity 1 $60,000 400 800 1,200
Activity 2 42,000 1,200 1,800 3,000
Activity 3 160,000 800 4,000 4,800
The annual production and sales of Product G is 20,000 units. The annual production and sales of
Product P is 40,000 units.

103.
following?
 $16.00
 $21.97
 $26.67
 $14.00
$42,000 / 3,000 = $14.00.

104.
The overhead cost per unit of Product P under activity-based costing is closest to which of the
following?
 $4.96
 $6.88
 $10.00
 $30.16
(($60,000/ 1,200) * 800 + ($42,000/3,000) * 1,800 + ($160,000/4,800) * 4,000)/40,000 = $4.96.

105.
The overhead cost per unit of Product G under activity-based costing is closest to which of the
following?
 $3.17
 $28.66
 $2.59
 $10.04
(($60,000/ 1,200) * 400 + ($42,000/ 3,000) * 1,200 + ($160,000/4,800) * 800) / 20,000 = $3.17.
Sarah Company has two products: T and V. The company uses activity-based costing and has
prepared the following analysis, showing the estimated total overhead cost and expected activity for

Expected Activity
Activity Cost Pool Estimated Cost Product T Product V Total
Activity 1 $30,000 200 400 600
Activity 2 39,000 400 900 1,300
Activity 3 80,000 400 3,600 4,000
The annual production and sales of Product T is 10,640 units. The annual production and sales of
Product V is 26,600.

106.
following?
 $16.00
 $21.97
 $26.67
 $30.00
39,000/1,300 = $30.

107.
The overhead cost per unit of Product V under activity-based costing is closest to which of the
following?
 $4.50
 $6.88
 $10.00
 $30.16
[(30,000/600) * 400 + (39,000/1,300) * 900 + (80,000/4,000) * 3,600]/26,600 = $4.5.

108.

The overhead cost per unit of Product T under activity-based costing is closest to which of the
following?
 $4.00
 $28.66
 $2.81
 $10.04
[(30,000/600) * 200 + (39,000/1,300) * 400 + (80,000/4,000) * 400]/10,640 = $2.81.
Rose Florist specializes in large floral bouquets for hotels and other commercial spaces. The

Overhead costs:
Total $124,000

Activity Cost Pools
Making Bouquets Delivery Other
Wages and salaries 60% 30% 10%
Other expenses 50% 20% 30%

Making bouquets 60,000 bouquets
Delivery 7,000 deliveries

109.
What would be the total overhead cost per bouquet according to the activity-based costing system,
Making Bouquets activity cost pool?
 $0.97
 $1.05
 $1.17
 $1.20
($82,000 * 0.60 + $42,000 * 0.50) / 60,000 = $1.17.

110.
What would be the total overhead cost per delivery according to the activity-based costing system,
Deliveries activity cost pool?
 $1.17
 $4.71
 $6.80
 $7.20
($82,000 * 0.30 + $42,000 * 0.20)/7,000 = $4.71.
Foster Florist specializes in large floral bouquets for hotels and other commercial spaces. The

Overhead costs:
Total $120,000

Activity Cost Pools
Making Bouquets Delivery Other
Wages and salaries 70% 20% 10%
Other expenses 45% 25% 30%


111.

 $1.35
 $1.73
 $1.79
 $2.10
(70,000 * .7 + 50,000 * .45)/40,000 = $1.79.

112.

 $24.00
 $26.50
 $27.00
 $30.00
(70,000 * .2 + 50,000 * .25)/1,000 = $26.50.
Foss Florist specializes in large floral bouquets for hotels and other commercial spaces. The

Overhead costs:
Total $110,000

Activity Cost Pools
Making Bouquets Delivery Other Total


113.

 $2.48
 $2.75
 $2.83
 $3.03
(70,000 * .55 + 40,000 * .45)/20,000 = $2.83.

114.
 $3.93
 $4.71
 $4.93
 $5.50
(70,000 * .35 + 40,000 * .25)/7,000 = $4.93.
Kate Catering uses activity-based costing for its overhead costs. The company has provided the
following data concerning the activity rates in its activity-based costing system:

Activity Cost Pools
Preparing Meals Arranging Functions
Wages $1.20 $120.00
Supplies $0.20 $380.00
Other expenses $0.25 $60.00
The number of meals served is the measure of activity for the Preparing Meals activity cost pool. The
number of functions catered is used as the activity measure for the Arranging Functions activity cost
pool.
Management would like to know whether the company made any money on a recent function at
which 370 meals were served. The company catered the function for a fixed price of $21.00 per
meal. The cost of the raw ingredients for the meals was $7.60 per meal. This cost is in addition to the
costs of wages, supplies, and other expenses detailed above.

115.

According to the activity-based costing system, what was the total cost (including the costs of raw
ingredients) of the function mentioned above, rounded to the nearest whole dollar?
 $3,063
 $1,060
 $3,983
 $3,000
370 * $7.60 + 370 * ($1.20 + $0.20 + $0.25) + ($120 + $380 + $60) = $2,812 + $610.50 + $560 =
$3,983.

116.
According to the activity-based costing system, what is the total profit margin for this function?
 $1,365
 $3,787
 $1,040
 $3,197
$21/meal * 370 - $3,983 (Total Cost) = $3,787.
Groce Catering uses activity-based costing for its overhead costs. The company has provided the

Activity Cost Pools
Wages $0.70 $145.00
Supplies $0.45 $230.00
pool.
which 150 meals were served. The company catered the function for a fixed price of $14.00 per
meal. The cost of the raw ingredients for the meals was $8.75 per meal. This cost is in addition to the
costs of wages, supplies, and other expenses detailed above.

117.

 $1,370
 $1,520
 $2,020
 $2,220
150 * $8.75 + 150 * (0.70 + 0.45 + 0.40) + 1 * (145 + 230 + 100) = $2,020.

118.
 ($70)
 ($20)
 $80
 $230
150 * $14 - 2,020 (total cost) = $80.
Grodt Catering uses activity-based costing for its overhead costs. The company has provided the

Activity Cost Pools
Wages $0.85 $110.00
Supplies $0.50 $310.00
pool.
which 60 meals were served. The company catered the function for a fixed price of $19.00 per meal.
The cost of the raw ingredients for the meals was $8.60 per meal. This cost is in addition to the costs
of wages, supplies, and other expenses detailed above.

119.

 $505
 $655
 $1,155
 $1,355
60 * $8.60 + 60 * (0.85 + 0.50 + 0.30) + 1 * (110 + 310 + 120) = $1,155.

120.
 ($165)
 ($115)
 ($15)
 $135
60 * $19 - 1,155 = ($15).
Addison Company has two products: A and B. Annual production and sales are 800 units of Product
A and 700 units of Product B. The company has traditionally used direct labour-hours as the basis for
applying all manufacturing overhead to products. Product A requires 0.20 direct labour hours per
unit and Product B requires 0.60 direct labour hours per unit. The total estimated overhead for next
period is $71,286.
have three factory overhead activity cost pools-Activity 1, Activity 2, and General Factory-with
estimated overhead costs and expected activity as follows:

Expected Activity
Overhead Cost
Activity 1 $20,000 310 500 810
Activity 2 40,000 800 600 1,400
General Factory 21,000 220 420 640
Total $81,000
hours.)

121.

(Appendix 7A) The predetermined overhead rate under the traditional costing system is closest to:
(Round your final answer to 2 decimal places.)
 $89.11
 $101.84
 $47.52
 $139.66
$81,000/ (800 * 0.20 + 700 * 0.60) = 81,000 / 580= $139.66.

122.
(Appendix 7A) The overhead cost per unit of Product B under the traditional costing system is
closest to: (Round your intermediate and final answer to 2 decimal places.)
 $22.38
 $13.56
 $73.74
 $83.80
$139.66 * 0.60 hrs. = $83.80.

123.

(Appendix 7A) The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-
based costing system is closest to:
 $28.57.
 $54.84
 $58.76
 $36.73
$40,000/1,400 = $28.57.

124.

(Appendix 7A) The overhead cost per unit of Product B under the activity-based costing system is
closest to: (Do not round intermediate calculations)
 $61.81.
 $56.62.
 $22.38.
 $47.52.
(($20,000/ 810) * 500 + ($40,000/ 1,400) * 600 + ($21,000/ 640) * 420) / 700 = $61.81.
Koszyk Manufacturing Corporation has a traditional costing system in which it applies manufacturing
overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs).
The company has two products, P85G and C43S, about which it has provided the following data:

P85G C43S

Supporting direct labour (DLHs) $1,160,000
Total $2,264,000

Expected Activity
P85G C43S Total
DLHs 28,000 12,000 40,000
Setups 1,480 920 2,400
Part types 1,880 840 2,720

125.
(Appendix 7A) The total cost of a unit of product P85G under the company's traditional costing
system is closest to:
 $146.97
 $102.58
 $101.69
 $80.50
OH rate = $2,264,000/40,000 = $56.60/DLH. OH cost = 56.60 * .8hrs = $45.28. Add to this DM of

$36.50 and DL of $20.80 = $102.58.

126.

(Appendix 7A) The total cost of a unit of product C43S under the activity-based costing system is
closest to:
 $165.34
 $233.26
 $162.22
 $105.34
OH/unit = [(1,160,000/40,000) * 12,000 + (288,000/2,400) * 920 + (816,000/2,720) * 840]/10,000 =

$71.04. Add 63.10 DM + 31.20 DL = $165.34.
Binegar Manufacturing Corporation has a traditional costing system in which it applies manufacturing
overhead to its products using a predetermined overhead rate based on direct labour-hours (DLHs).
The company has two products, R58G and R09O, about which it has provided the following data:

R58G R09O
The company's estimated total manufacturing overhead for the year is $1,617,600 and the company's
estimated total direct labour-hours for the year is 24,000.

Assembling products (DLHs) $696,000
Product support (product variations) 669,600
Total $1,617,600

Expected Activity
R58G R09O Total
DLHs 3,000 21,000 24,000
Batches 528 1,152 1,680
Production variations 1,056 1,176 2,232

127.

(Appendix 7A) The manufacturing overhead that would be applied to a unit of product R58G under
the company's traditional costing system is closest to:
 $6.74
 $16.10
 $22.84
 $2.90
$1,617,600/24,000hrs * .10hrs/unit = $6.74.

128.

(Appendix 7A) The manufacturing overhead that would be applied to a unit of product R09O under
the activity-based costing system is closest to:
 $113.46
 $255.00
 $141.54
 $17.28
[(696,000/24,000) * 21,000 + (252,000/1,680) * 1,152 + (669,600/2,232) * 1,176]/10,000 = $113.46.
Simpson Manufacturing Corporation has a traditional costing system in which it applies

labour-hours (DLHs). The company has two products, U86Y and M91F, about which it has provided
the following data:

U86Y M91F

Direct labour support (DLHs) $1,175,000
Total $2,541,760

Expected Activity
U86Y M91F Total
DLHs 30,000 20,000 50,000
Setups 3,000 712 3,712
Part types 1,034 2,000 3,034

129.
(Appendix 7A) The unit product cost of product U86Y under the company's traditional costing
system is closest to:
 $71.15
 $55.50
 $78.87
 $38.00
$2,541,760/50,000 * 0.80 + $20.00 + $18.20 = $78.87.

130.

(Appendix 7A) The unit product cost of product M91F under the activity-based costing system is
closest to:
 $95.20
 $121.57
 $209.63
 $197.95
($1,175,000/50,000 * 20,000 + $407,960/3,712 * 712 + $958,800/3,034 * 2,000)/10,000 + $42.20 +

$49.40 = $209.63.

7

Uploaded by

Copyright:

Available Formats

7

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

7

Uploaded by

Copyright:

Available Formats

12/16/21, 1:32 PM Assignment Print View

a) Activity rates (costs divided by activity)

b) Overhead cost of the job.

Office expense 113.40 288.13 401.53

Predetermined overhead rate = $160,790/13,880 DLHs = $11.58/DLH

Using this overhead rate, the unit product costs are:

Total Unit Product Cost $37.62 $53.71

b) The overhead rates for each activity centre are as follows:

The overhead cost charged to each product is:

Overhead cost per unit:

Product C: $63,080/3,400 units = $18.55 per unit.

a. Traditional Manufacturing Overhead Costs

b. ABC Manufacturing Overhead Costs

Overhead cost for D31X

Overhead cost for U75X

a. Traditional Unit Product Costs

b. ABC Unit Product Costs

Overhead cost for W82R

Overhead cost for L48S

 $18 per unit.

 $16 per unit.

 $20 per unit.

 $9.25 per unit.

Distribution of Resource Consumption:

b) Activity rates (costs divided by activity)

c) Overhead cost of the job.

a. Traditional Manufacturing Overhead Costs

b. ABC Manufacturing Overhead Costs

Overhead cost for H16Z

Overhead cost for P25P

When combining activities in an activity-based costing system, activities should be grouped

 $18 per unit.

 $16 per unit.

 $20 per unit.

 $274 per unit.

Machining activity rate (ACDR):

Milling activity rate (ACDR):

(20% × $100,000) + (20% × $40,000) + (0% × $60,000) = $28,000.

Distribution of Resource Consumption:

Activity rates (costs divided by activity):

 $18 per unit.

 $16 per unit.

 $24.00 per unit.

 $27.75 per unit.

Machining activity rate (ACDR):

Milling activity rate (ACDR):

Setting up equipment is an example of an activity at which of the following levels?

Providing power to run processing equipment can be considered a:

 Unit level activities

 Batch level activities

 Product level activities

 Customer level activities

Which of the following is NOT a limitation of activity-based costing?

 Maintaining an activity-based costing system is more costly than maintaining a traditional

 Changing from a traditional direct labour-based costing system to an activity-based

Distribution of Resource Consumption:

b) Activity rates (costs divided by activity)

c) Overhead cost of the job.

(50% × $100,000) + (40% × $40,000) + (10% × $60,000) = $72,000.

The creation of homogeneous cost pools is part of implementing ABC costing.