Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-1
Chapter 07 Appendix B Using a Modified Form of Activity-Based Costing to
Determine Product Costs for External Reports Answer Key
Multiple Choice Questions
Addy Company makes two products: Product A and Product B. Annual production and sales
are 1,700 units of Product A and 1,100 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 0.3 direct labor-hours per unit and Product B requires 0.6 direct labor-
hours per unit. The total estimated overhead for next period is $98,785.
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:
(Note: The General Factory activity cost pool’s costs are allocated on the basis of direct labor–
hours.)
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-2
1. The predetermined overhead rate under the traditional costing system is closest to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-3
2. The overhead cost per unit of Product B under the traditional costing system is closest to:
3. The predetermined overhead rate (i.e., activity rate) for Activity 2 under the activity-based
costing system is closest to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-4
4. The overhead cost per unit of Product B under the activity-based costing system is closest
to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-5
Shininger 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, G27U and W21K, about which it has
provided the following data:
The company’s estimated total manufacturing overhead for the year is $985,440 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:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-6
5. The manufacturing overhead that would be applied to a unit of product G27U under the
company’s traditional costing system is closest to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-7
6. The manufacturing overhead that would be applied to a unit of product W21K under the
activity-based costing system is closest to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-8
Latting 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, T73C and R28K, about which it has
provided the following data:
The company’s estimated total manufacturing overhead for the year is $1,526,700 and the
company’s estimated total direct labor-hours for the year is 30,000.
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:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B-9
7. The manufacturing overhead that would be applied to a unit of product T73C under the
company’s traditional costing system is closest to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B–10
8. The manufacturing overhead that would be applied to a unit of product R28K under the
activity-based costing system is closest to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B–11
Scholes 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, L45Y and F91I, about which it has
provided the following data:
The company’s estimated total manufacturing overhead for the year is $3,170,400 and the
company’s estimated total direct labor-hours for the year is 60,000.
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:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B–12
9. The unit product cost of product L45Y under the company’s traditional costing system is
closest to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B–13
10. The unit product cost of product F91I under the activity-based costing system is closest
to:
Chapter 07 – Appendix B Using a Modified Form of Activity-Based Costing to Determine Product Costs for
External Reports
7B–14
Solum 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, V47Q and K41P, about which it has
provided the following data:
The company’s estimated total manufacturing overhead for the year is $2,449,440 and the
company’s estimated total direct labor-hours for the year is 54,000.
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: