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Test Bank for Managerial Accounting 16th edition By Garrison
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Test Bank for Managerial Accounting 16th edition By Garrison
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WITH ANSWERS
Test Bank of Managerial Accounting 16th edition By Garrison
Managerial Accounting, 16e (Garrison)
Appendix 2A Activity-Based Absorption Costing
1) Feauto Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, I63E and E76I, about which it has provided the following data:
| Direct materials per unit | $ | 19.90 | $ | 54.40 | ||
| Direct labor per unit | $ | 12.00 | $ | 31.50 | ||
| Direct labor-hours per unit | 0.80 | 2.10 | ||||
| Annual production (units) | 30,000 | 10,000 |
The companys estimated total manufacturing overhead for the year is $2,063,250 and the companys estimated total direct labor-hours for the year is 45,000.
The company is considering using a form 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) | $ | 720,000 | |
| Preparing batches (batches) | 263,250 | ||
| Product support (product variations) | 1,080,000 | ||
| Total | $ | 2,063,250 | |
| Expected Activity | |||
| I63E | E76I | Total | |
| DLHs | 24,000 | 21,000 | 45,000 |
| Batches | 1,080 | 675 | 1,755 |
| Product variations | 2,115 | 1,485 | 3,600 |
The manufacturing overhead that would be applied to a unit of product I63E under the companys traditional costing system is closest to:
- A) $12.80
- B) $39.35
- C) $76.03
- D) $36.68
Answer: D
Explanation:
| Product I63E 30,000 units 0.80 direct labor-hours per unit | 24,000 |
| Product E76I 10,000 units 2.10 direct labor-hours per unit | 21,000 |
| Total direct labor-hours | 45,000 |
Predetermined overhead rate = $2,063,250 45,000 direct labor-hours = $45.85 per direct labor-hour
Overhead applied to a unit of product I63E = $45.85 per direct labor-hours 0.80 direct labor-hours per unit = $36.68 per unit
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
2) Feauto Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, I63E and E76I, about which it has provided the following data:
| I63E | E76I | ||||||
| Direct materials per unit | $ | 19.90 | $ | 54.40 | |||
| Direct labor per unit | $ | 12.00 | $ | 31.50 | |||
| Direct labor-hours per unit | 0.80 | 2.10 | |||||
| Annual production (units) | 30,000 | 10,000 | |||||
The companys estimated total manufacturing overhead for the year is $2,063,250 and the companys estimated total direct labor-hours for the year is 45,000.
The company is considering using a form 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) | $ | 720,000 | |
| Preparing batches (batches) | 263,250 | ||
| Product support (product variations) | 1,080,000 | ||
| Total | $ | 2,063,250 | |
| Expected Activity | |||
| I63E | E76I | Total | |
| DLHs | 24,000 | 21,000 | 45,000 |
| Batches | 1,080 | 675 | 1,755 |
| Product variations | 2,115 | 1,485 | 3,600 |
The manufacturing overhead that would be applied to a unit of product E76I under the activity-based costing system is closest to:
- A) $88.28
- B) $96.29
- C) $184.57
- D) $10.13
Answer: A
Explanation: The activity rates for each activity cost pool are computed as follows:
| Total Cost | Total Activity | Activity Rate | ||||||||
| Assembling products | $ | 720,000 | 45,000 | DLHs | $ | 16 | per DLH | |||
| Preparing batches | 263,250 | 1,755 | batches | $ | 150 | per batch | ||||
| Product support | $ | 1,080,000 | 3,600 | variations | $ | 300 | per variation | |||
The overhead cost charged to Product E76I is:
| Total | Per Unit | Percent of Sales | ||||||||
| Assembling products | $ | 16 | per DLH | 21,000 | DLHs | $ | 336,000 | |||
| Preparing batches | $ | 150 | per batch | 675 | batches | 101,250 | ||||
| Product support | $ | 300 | per variation | 1,485 | variations | 445,500 | ||||
| $ | 882,750 | |||||||||
Manufacturing overhead applied to a unit of product E76I = $882,750 10,000 units = $88.28 per unit
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
3) Coudriet Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, P93S and N40S, about which it has provided the following data:
| P93S | N40S | |||||||
| Direct materials per unit | $ | 21.90 | $ | 54.80 | ||||
| Direct labor per unit | $ | 8.80 | $ | 13.20 | ||||
| Direct labor-hours per unit | 0.80 | 1.20 | ||||||
| Annual production (units) | 35,000 | 15,000 | ||||||
The companys estimated total manufacturing overhead for the year is $2,172,580 and the companys estimated total direct labor-hours for the year is 46,000.
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 |
||
| Direct labor support (DLHs) | $ | 552,000 | |
| Setting up machines (setups) | 419,980 | ||
| Part administration (part types) | 1,200,600 | ||
| Total | $ | 2,172,580 | |
| Expected Activity | ||||
| P93S | N40S | Total | ||
| DLHs | 28,000 | 18,000 | 46,000 | |
| Setups | 2,162 | 1,656 | 3,818 | |
| Part types | 1,886 | 2,116 | 4,002 | |
The unit product cost of product P93S under the companys traditional costing system is closest to:
- A) $68.48
- B) $63.26
- C) $30.70
- D) $40.30
Answer: A
Explanation: Direct labor-hour calculation:
| Product P93S 35,000 units 0.80 direct labor-hours per unit | 28,000 |
| Product R28K 15,000 units 1.20 direct labor-hours per unit | 18,000 |
| Total direct labor-hours | 46,000 |
Predetermined overhead rate = $2,172,580 46,000 direct labor-hours = $47.23 per direct labor-hour
Overhead per unit of product P93S = $47.23 per direct labor-hour 0.80 direct labor-hours per unit = $37.78 per unit
| Direct materials | $ | 21.90 | |
| Direct labor | 8.80 | ||
| Overhead | 37.78 | ||
| Unit product cost | $ | 68.48 |
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
4) Coudriet Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, P93S and N40S, about which it has provided the following data:
| P93S | N40S | |||||||
| Direct materials per unit | $ | 21.90 | $ | 54.80 | ||||
| Direct labor per unit | $ | 8.80 | $ | 13.20 | ||||
| Direct labor-hours per unit | 0.80 | 1.20 | ||||||
| Annual production (units) | 35,000 | 15,000 | ||||||
The companys estimated total manufacturing overhead for the year is $2,172,580 and the companys estimated total direct labor-hours for the year is 46,000.
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 |
||
| Direct labor support (DLHs) | $ | 552,000 | |
| Setting up machines (setups) | 419,980 | ||
| Part administration (part types) | 1,200,600 | ||
| Total | $ | 2,172,580 | |
| Expected Activity | ||||
| P93S | N40S | Total | ||
| DLHs | 28,000 | 18,000 | 46,000 | |
| Setups | 2,162 | 1,656 | 3,818 | |
| Part types | 1,886 | 2,116 | 4,002 | |
The unit product cost of product N40S under the activity-based costing system is closest to:
- A) $68.00
- B) $68.86
- C) $124.68
- D) $136.86
Answer: D
Explanation: The activity rates for each activity cost pool are computed as follows:
| Total Cost | Total Activity | Activity Rate | ||||||||
| Direct labor support | $ | 552,000 | 46,000 | DLHs | $ | 12 | per DLH | |||
| Setting up machines | $ | 419,980 | 3,818 | per setup | $ | 110 | per setup | |||
| Part administration | $ | 1,200,600 | 4,002 | per part type | $ | 300 | per part type | |||
The overhead cost charged to Product N40S is:
| Activity Rate | Activity | ABC Cost | ||||||||
| Direct labor support | $ | 12 | per DLH | 18,000 | DLHs | $ | 216,000 | |||
| Setting up machines | $ | 110 | per setup | 1,656 | per setup | 182,160 | ||||
| Part administration | $ | 300 | per part type | 2,116 | per part type | 634,800 | ||||
| 1,032,960 | ||||||||||
Overhead cost per unit of Product N40S = $1,032,960 15,000 units = $68.86 per unit
| Direct materials | $ | 54.80 | |
| Direct labor | 13.20 | ||
| Overhead | 68.86 | ||
| Unit product cost | $ | 136.86 | |
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
5) Poma Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R78S and N32Y, about which it has provided the following data:
| R78S | N32Y | |||||||
| Direct materials per unit | $ | 27.20 | $ | 54.70 | ||||
| Direct labor per unit | $ | 8.80 | $ | 22.00 | ||||
| Direct labor-hours per unit | 0.4 | 1.0 | ||||||
| Annual production (units) | 35,000 | 10,000 | ||||||
The companys estimated total manufacturing overhead for the year is $1,427,040 and the companys estimated total direct labor-hours for the year is 24,000.
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) | $ | 672,000 | |
| Preparing batches (batches) | 255,840 | ||
| Product support (product variations) | 499,200 | ||
| Total | $ | 1,427,040 | |
| Expected Activity | |||
| R78S | N32Y | Total | |
| DLHs | 14,000 | 10,000 | 24,000 |
| Batches | 816 | 1,152 | 1,968 |
| Product variations | 840 | 408 | 1,248 |
The unit product cost of product R78S under the companys traditional costing system is closest to:
- A) $36.00
- B) $59.83
- C) $47.20
- D) $59.78
Answer: D
Explanation: Direct labor-hour calculation:
| Product R78S 35,000 units 0.4 direct labor-hours per unit | 14,000 |
| Product N32Y 10,000 units 1.0 direct labor-hours per unit | 10,000 |
| Total direct labor-hours | 24,000 |
Predetermined overhead rate = $1,427,040 24,000 direct labor-hours = $59.46 per direct labor-hour
Overhead applied to each unit of product R78S = $59.46 per direct labor-hour 0.4 direct labor-hours per unit = $23.78 per unit
| Direct materials | $ | 27.20 | |
| Direct labor | 8.80 | ||
| Overhead | 23.78 | ||
| Unit product cost | $ | 59.78 |
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
6) Poma Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, R78S and N32Y, about which it has provided the following data:
| R78S | N32Y | |||||||
| Direct materials per unit | $ | 27.20 | $ | 54.70 | ||||
| Direct labor per unit | $ | 8.80 | $ | 22.00 | ||||
| Direct labor-hours per unit | 0.4 | 1.0 | ||||||
| Annual production (units) | 35,000 | 10,000 | ||||||
The companys estimated total manufacturing overhead for the year is $1,427,040 and the companys estimated total direct labor-hours for the year is 24,000.
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) | $ | 672,000 | |
| Preparing batches (batches) | 255,840 | ||
| Product support (product variations) | 499,200 | ||
| Total | $ | 1,427,040 | |
| Expected Activity | |||
| R78S | N32Y | Total | |
| DLHs | 14,000 | 10,000 | 24,000 |
| Batches | 816 | 1,152 | 1,968 |
| Product variations | 840 | 408 | 1,248 |
The unit product cost of product N32Y under the activity-based costing system is closest to:
- A) $136.00
- B) $76.70
- C) $59.30
- D) $136.16
Answer: A
Explanation: The activity rates for each activity cost pool are computed as follows:
| Total Cost | Total Activity | Activity Rate | ||||||
| Assembling products | $ | 672,000 | 24,000 | DLHs | $ | 28 | per DLH | |
| Preparing batches | $ | 255,840 | 1,968 | batches | $ | 130 | per batch | |
| Product support | $ | 499,200 | 1,248 | variations | $ | 400 | per variation | |
The overhead cost charged to Product N32Y is:
| Activity Rate | Activity | ABC Cost | ||||||||
| Assembling products | $ | 28 | per DLH | 10,000 | DLHs | $ | 280,000 | |||
| Preparing batches | $ | 110 | per setup | 1,656 | per setup | 182,160 | ||||
| Product support | $ | 400 | per variation | 408 | variations | 163,200 | ||||
| 592,960 | ||||||||||
Overhead per unit of Product N32Y = $592,960 10,000 units = $59.30 per unit
| Direct materials | $ | 54.70 | |
| Direct labor | 22.00 | ||
| Overhead | 59.30 | ||
| Unit product cost | $ | 136.00 |
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
7) Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 1,000 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 0.4 direct labor-hours per unit and Product B requires 0.2 direct labor-hours per unit. The total estimated overhead for next period is $68,756.
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 poolsActivity 1, Activity 2, and General Factorywith estimated overhead costs and expected activity as follows:
| Expected Activity | |||||
| Activity Cost Pool | Estimated Overhead Costs | Product A | Product B | Total | |
| Activity 1 | $ | 31,031 | 1,000 | 300 | 1,300 |
| Activity 2 | $ | 22,249 | 1,600 | 300 | 1,900 |
| General Factory | $ | 15,476 | 200 | 200 | 400 |
| Total | $ | 68,756 | |||
(Note: The General Factory activity cost pools costs are allocated on the basis of direct labor-hours.)
The predetermined overhead rate under the traditional costing system is closest to:
- A) $11.71
- B) $38.69
- C) $171.89
- D) $23.87
Answer: C
Explanation: Direct labor-hour calculation:
| Product A 500 units 0.4 direct labor-hours | 200 |
| Product B 1,000 units 0.2 direct labor-hours | 200 |
| Total direct labor-hours | 400 |
Predetermined overhead rate = Total estimated overhead Total estimated direct labor-hours
= $68,756 400 direct labor-hours = $171.89 per direct labor-hour
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
8) Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 1,000 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 0.4 direct labor-hours per unit and Product B requires 0.2 direct labor-hours per unit. The total estimated overhead for next period is $68,756.
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 poolsActivity 1, Activity 2, and General Factorywith estimated overhead costs and expected activity as follows:
| Expected Activity | |||||
| Activity Cost Pool | Estimated Overhead Costs | Product A | Product B | Total | |
| Activity 1 | $ | 31,031 | 1,000 | 300 | 1,300 |
| Activity 2 | $ | 22,249 | 1,600 | 300 | 1,900 |
| General Factory | $ | 15,476 | 200 | 200 | 400 |
| Total | $ | 68,756 | |||
(Note: The General Factory activity cost pools costs are allocated on the basis of direct labor-hours.)
The overhead cost per unit of Product B under the traditional costing system is closest to:
- A) $2.34
- B) $7.74
- C) $4.77
- D) $34.38
Answer: D
Explanation: Direct labor-hour calculation:
| Product A 500 units 0.4 direct labor-hours | 200 |
| Product B 1,000 units 0.2 direct labor-hours | 200 |
| Total direct labor-hours | 400 |
Predetermined overhead rate = Total estimated overhead Total estimated direct labor-hours
= $68,756 400 direct labor-hours = $171.89 per direct labor-hour
Overhead cost per unit of B = $171.89 per direct labor-hour 0.2 direct labor-hours per unit
= $34.38 per unit
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
9) Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 1,000 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 0.4 direct labor-hours per unit and Product B requires 0.2 direct labor-hours per unit. The total estimated overhead for next period is $68,756.
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 poolsActivity 1, Activity 2, and General Factorywith estimated overhead costs and expected activity as follows:
| Expected Activity | |||||
| Activity Cost Pool | Estimated Overhead Costs | Product A | Product B | Total | |
| Activity 1 | $ | 31,031 | 1,000 | 300 | 1,300 |
| Activity 2 | $ | 22,249 | 1,600 | 300 | 1,900 |
| General Factory | $ | 15,476 | 200 | 200 | 400 |
| Total | $ | 68,756 | |||
(Note: The General Factory activity cost pools costs are allocated on the basis of direct labor-hours.)
The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based costing system is closest to:
- A) $13.91
- B) $11.71
- C) $74.16
- D) $36.19
Answer: B
Explanation: Activity rate for Activity 2 = $22,249 1,900 = $11.71
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
10) Adelberg Corporation makes two products: Product A and Product B. Annual production and sales are 500 units of Product A and 1,000 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 0.4 direct labor-hours per unit and Product B requires 0.2 direct labor-hours per unit. The total estimated overhead for next period is $68,756.
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 poolsActivity 1, Activity 2, and General Factorywith estimated overhead costs and expected activity as follows:
| Expected Activity | |||||
| Activity Cost Pool | Estimated Overhead Costs | Product A | Product B | Total | |
| Activity 1 | $ | 31,031 | 1,000 | 300 | 1,300 |
| Activity 2 | $ | 22,249 | 1,600 | 300 | 1,900 |
| General Factory | $ | 15,476 | 200 | 200 | 400 |
| Total | $ | 68,756 | |||
| (Note: The General Factory activity cost pools costs are allocated on the basis of direct labor-hours.) |
The overhead cost per unit of Product B under the activity-based costing system is closest to:
- A) $45.84
- B) $7.74
- C) $34.38
- D) $18.41
Answer: D
Explanation: The activity rates for each activity cost pool are computed as follows:
| Total Cost | Total Activity | Activity Rate | |||||||
| Activity 1 | $ | 31,031 | 1,300 | $ | 23.87 | ||||
| Activity 2 | $ | 22,249 | 1,900 | $ | 11.71 | ||||
| General Factory | $ | 15,476 | 400 | $ | 38.69 | ||||
The overhead cost charged to Product B is:
| Activity Rate | Activity | ABC Cost | |||||||
| Activity 1 | $ | 23.87 | 300 | $ | 7,161 | ||||
| Activity 2 | $ | 11.71 | 300 | $ | 3,513 | ||||
| General Factory | $ | 38.69 | 200 | $ | 7,738 | ||||
| $ | 18,412 | ||||||||
Overhead cost per unit of Product B = $18,412 1,000 units = $18.41 per unit
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
11) Njombe Corporation manufactures a variety of products. In the past, Njombe has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, Njombe has decided to switch to an activity-based costing system for manufacturing overhead costs that uses the three activity cost pools listed below. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for next year are as follows:
| Activity Cost Pool | Activity Measure | Estimated Activity | Estimated Overhead Cost | |||||
| Machine Setups | Number of setups | 400 | $ | 150,000 | ||||
| Quality Control | Number of inspections | 1,500 | $ | 180,000 | ||||
| Other Overhead | Machine hours | 30,000 | $ | 480,000 | ||||
Information (on a per unit basis) related to three popular products at Njombe are as follows:
| Model #19 | Model #36 | Model #58 | |||||||
| Direct material cost | $ | 400 | $ | 540 | $ | 310 | |||
| Direct labor cost | $ | 810 | $ | 600 | $ | 220 | |||
| Number of setups | 2 | 3 | 1 | ||||||
| Number of inspections | 1 | 3 | 1 | ||||||
| Number of machine hours | 4 | 8 | 10 | ||||||
Under the traditional costing system, what would be the selling price of one unit of Model #36?
- A) $2,536
- B) $2,712
- C) $4,080
- D) $5,506
Answer: C
Explanation:
| Direct materials | $ | 540 | |
| Direct labor | 600 | ||
| Manufacturing overhead (1.5 $600) | 900 | ||
| Unit product cost | $ | 2,040 | |
| Selling price (2.00 $2,040) | $ | 4,080 |
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
12) Njombe Corporation manufactures a variety of products. In the past, Njombe has been using a traditional costing system in which the predetermined overhead rate was 150% of direct labor cost. Selling prices had been set by multiplying total product cost by 200%. Sensing that this system was distorting costs and selling prices, Njombe has decided to switch to an activity-based costing system for manufacturing overhead costs that uses the three activity cost pools listed below. Selling prices are still to be set at 200% of unit product cost under the new system. Information on these cost pools for next year are as follows:
| Activity Cost Pool | Activity Measure | Estimated Activity | Estimated Overhead Cost | |||||
| Machine Setups | Number of setups | 400 | $ | 150,000 | ||||
| Quality Control | Number of inspections | 1,500 | $ | 180,000 | ||||
| Other Overhead | Machine hours | 30,000 | $ | 480,000 | ||||
Information (on a per unit basis) related to three popular products at Njombe are as follows:
| Model #19 | Model #36 | Model #58 | |||||||
| Direct material cost | $ | 400 | $ | 540 | $ | 310 | |||
| Direct labor cost | $ | 810 | $ | 600 | $ | 220 | |||
| Number of setups | 2 | 3 | 1 | ||||||
| Number of inspections | 1 | 3 | 1 | ||||||
| Number of machine hours | 4 | 8 | 10 | ||||||
Under the activity-based costing system, what would be the selling price of one unit of Model #36?
- A) $2,536
- B) $2,712
- C) $4,080
- D) $5,506
Answer: D
Explanation: The activity rates are computed as follows:
| Activity Cost Pools | Total Cost | Total Activity | Activity Rate | |||||
| Machine Setups | $ | 150,000 | 400 | setups | $ | 375 | per setup | |
| Quality Control | $ | 180,000 | 1,500 | inspections | $ | 120 | per inspection | |
| Other Overhead | $ | 480,000 | 30,000 | machine-hours | $ | 16 | per machine-hour | |
The overhead cost charged to Model #36 is:
| Activity Cost Pools | Activity Rate | Activity | ABC Cost | |||||||
| Machine Setups | $ | 375 | per setup | 3 | setups | $ | 1,125 | |||
| Quality Control | $ | 120 | per inspection | 3 | inspections | 360 | ||||
| Other Overhead | $ | 16 | per machine-hour | 8 | machine-hours | 128 | ||||
| Total overhead cost | $ | 1,613 | ||||||||
| Direct materials | $ | 540 | |
| Direct labor | 600 | ||
| Manufacturing overhead (1.5 $600) | 1,613 | ||
| Unit product cost | $ | 2,753 | |
| Selling price (2.00 $2,753) | $ | 5,506 |
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 02-05 (Appendix 2A) Use activity-based absorption costing to compute unit product costs.
Blooms: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
13) Njombe Corporation manufactures a variety
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