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Tatman Corporation uses an activity-based costing system with the following three
activity cost pools:
The Other activity cost pool is used to accumulate costs of idle capacity and organization-
sustaining costs.
The company has provided the following data concerning its costs:
The distribution of resource consumption across activity cost pools is given below:
The activity rate for the Fabrication activity cost pool is closest to:
A) $3.30 per machine-hour
B) $13.20 per machine-hour
C) $10.30 per machine-hour
D) $8.80 per machine-hour
Solution:
(a) ÷ (b)
(a) (b)
Activity Cost Pool Total Cost Total Activity Activity Rate
Fabrication $103,000 10,000 machine-hours $10.30 per machine-hour
2. Gutknecht Corporation 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:
Wages and salaries ............ $300,000
Depreciation ...................... 180,000
Utilities .............................. 240,000
Total................................... $720,000
How much cost, in total, would be allocated in the first-stage allocation to the Other
activity cost pool?
A) $138,000
B) $210,000
C) $180,000
D) $216,000
Solution:
3. Feldpausch Corporation has provided the following data from its activity-based costing
system:
The company makes 470 units of product W26B a year, requiring a total of 660 machine-
hours, 50 orders, and 40 inspection-hours per year. The product's direct materials cost is
$40.30 per unit and its direct labor cost is $42.22 per unit. The product sells for $118.00
per unit. According to the activity-based costing system, the product margin for product
W26B is:
A) $6,444.70 per unit
B) $4,679.20 per unit
C) $3,384.70 per unit
D) $16,675.60 per unit
Solution:
Sales................................................ $55,460.00
Costs:
Direct materials (470 × $40.30) .. $18,941.00
Direct labor (470 × $42.22) ........ 19,843.40
Assembly .................................... 8,936.40
Processing ................................... 1,294.50
Inspection .................................... 3,060.00 52,075.30
Product margin ............................... $ 3,384.70
4. Houseal Corporation has provided the following data from its activity-based costing
system:
Total
Activity Cost Pool Cost Total Activity
Assembly ..................... $613,250 55,000 machine-hours
Processing orders ......... $46,170 1,500 orders
inspection-
Inspection .................... $146,110 1,900 hours
Data concerning one of the company’s products, Product W58B, appear below:
According to the activity-based costing system, the product margin for product W58B is:
A) $3,668.60
B) $5,975.60
C) $5,515.40
D) $19,418.40
Solution:
5. Dietz 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:
Manufacturing overhead ........................... $440,000
Selling and administrative expenses ......... 240,000
Total .......................................................... $680,000
Distribution of resource consumption:
Activity Cost Pools
Order Customer
Size Support Other Total
Manufacturing overhead ..................... 55% 35% 10% 100%
Selling and administrative expenses ... 30% 50% 20% 100%
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.
How much cost, in total, should NOT be allocated to orders and products in the second stage
of the allocation process if the activity-based costing system is used for internal decision-
making?
A) $68,000
B) $0
C) $92,000
D) $136,000
Solution:
Other Cost:
Manufacturing overhead: 10% × $440,000 ........................... $44,000
Selling and administrative expenses: 20% × $240,000 ......... 48,000
Total....................................................................................... $92,000
Espinoza 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:
Filling Customer
Activity Cost Pools Orders Support Other Total
Wages and salaries ...... 35% 55% 10% 100%
Other expenses ............ 15% 65% 20% 100%
The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining
costs.
6. What would be the total overhead cost per order according to the activity-based costing
system? In other words, what would be the overall activity rate for the filling orders
activity cost pool? (Round to the nearest whole cent.)
A) $25.25
B) $23.75
C) $33.25
D) $14.25
Solution:
7. What would be the total overhead cost per customer according to the activity based costing
system? In other words, what would be the overall activity rate for the customer support
activity cost pool? (Round to the nearest whole dollar.)
A) $10,450
B) $11,250
C) $12,350
D) $11,400
Solution:
8.To the nearest whole dollar, how much wages and salaries cost would be allocated to a
customer who made 6 orders in a year?
A) $5,745
B) $10,650
C) $6,166
D) $5,325
Solution:
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 labor-hours as
the basis for applying all manufacturing overhead to products. Product A requires 0.2 direct labor
hours per unit and Product B requires 0.6 direct labor hours per unit. The total estimated
overhead for next period is $71,286.
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
Estimated
Activity Cost Pool Overhead Costs Product A Product B Total
Activity 1 ............... $20,272 300 500 800
Activity 2 ............... 29,380 800 500 1,300
General Factory ..... 21,634 160 420 580
Total ...................... $71,286
(Note: The General Factory activity cost pool's costs are allocated on the basis of direct labor
hours.)
9. The predetermined overhead rate under the traditional costing system is closest to:
A) $25.34
B) $22.60
C) $37.30
D) $122.91
Solution:
10. The overhead cost per unit of Product B under the activity-based costing system is closest to:
A) $73.74
B) $56.62
C) $22.38
D) $47.52
Solution:
Overhead cost per unit = $39,636 ÷ 700 units = $56.62 per unit (rounded)