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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:
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 company's estimated total manufacturing overhead for the year is $2,063,250 and the
company's 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
company's traditional costing system is closest to:
A) $12.80
B) $39.35
C) $76.03
D) $36.68
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 company's estimated total manufacturing overhead for the year is $2,063,250 and the
company's 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
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 company's estimated total manufacturing overhead for the year is $2,172,580 and the
company's 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 company's traditional costing system is closest
to:
A) $68.48
B) $63.26
C) $30.70
D) $40.30
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 company's estimated total manufacturing overhead for the year is $2,172,580 and the
company's 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
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 company's estimated total manufacturing overhead for the year is $1,427,040 and the
company's 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 company's traditional costing system is closest
to:
A) $36.00
B) $59.83
C) $47.20
D) $59.78
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 company's estimated total manufacturing overhead for the year is $1,427,040 and the
company's 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
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 pools--Activity 1, Activity 2, and General Factory--with
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 pool's 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
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 pools--Activity 1, Activity 2, and General Factory--with
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 pool's 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
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 pools--Activity 1, Activity 2, and General Factory--with
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 pool's 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
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 pools--Activity 1, Activity 2, and General Factory--with
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 pool's 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
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
