#1. 1.A company presently uses traditional volume based costing to allocate overhead to their products. Information on two of their products is as follows:

Product A Product B

Selling price $8$12

Direct Material $2 $3

Direct Labor$1$2

Applied Overhead$3$4

Gross Margin$2$3

The company is considering implementing an activity based costing system. After identifying cost pools and cost drive the amount of overhead that would be applied to product A would drop to $2 per unit and the overhead applied to product B would increase to $8 a unit.

How will the change in the way overhead is allocated affect the selling price of the both products?

a.The price of Product A would be decreased, and the price of product B would be increased

b.The price of Product A would be increased, and the price of products B would be increased.

c.The price of Product A would be increased, and the price of product B would be decreased.

d.The price of neither product would change

#2. A company has three product lines and has historically utilized the traditional costing system to allocate overhead costs to each product line. Due to significant differences in the production processes for the three product lines, the company implemented an activity based costing study and identified the activity based cost for each product as shows below:

Product AProduct BProduct C

Traditional cost per unit $558$1,375$1,211

Activity Based cost per unit$485$1,585$987

Selling price per unit $650$1,450$1,300

What decision should be made based on this information?

a.The selling price for products A and C should increase because the cost per unit was more than the selling price per unit

b.The selling price should increase for all three products because the cost per unit significantly changed for each product.

c.The selling price for product B should increase because the cost per unit was more than the selling price per unit

d.No change should be made to the selling price because the cost per unit did not change significantly for any product.

#3. A company manufactures and sells widgets.The following information is available:

Each widget sells for $100

The vehicle cost per widget is $40

Total fixed costs per month are $210,000

How many widgets does the company need to sell each month to break even?

a.5,250

b.3,500

c.2,100

d.1,500