1.

In its first year of operations a company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the companys only two products is shown below:

	Product A				Product B				Total
Direct materials	$	436,300			$	248,300			$	684,600
Direct labor	$	200,000			$	104,000				304,000
Manufacturing overhead										608,000
Cost of goods sold									$	1,596,600

The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows:

						Activity
Activity Cost Pool (and Activity Measure)	Manufacturing Overhead						Product A			Product B			Total
Machining (machine-hours)		$	213,500				90,000			62,500			152,500
Setups (setup hours)			157,500				75			300			375
Product design (number of products)			120,000				1			1			2
Other (organization-sustaining costs)			117,000				NA			NA			NA
Total manufacturing overhead cost		$	608,000

The companys ABC implementation team also concluded that $50,000 and $100,000 of the companys advertising expenses could be directly traced to Product A and Product B, respectively. The remainder of its selling and administrative expenses ($400,000) was organization-sustaining in nature. If the company uses a traditional cost system that relies on plantwide overhead allocation based on direct labor dollars, what is the total gross margin (or product margin) earned by Product B?

Multiple Choice

• $36,300

• $60,400

• $139,700

• $160,400

2.

Assume a company manufactures only two products14,000 units of Product C and 6,000 units of Product D. It is considering implementing an activity-based costing (ABC) system that allocates all of its manufacturing overhead to three cost pools. The following additional information is available for the company as a whole and for Products C and D:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost			Expected Activity
Machining	Machine-hours	$	300,000		15,000	MH
Machine setups	Number of setups	$	150,000		200	Setups
Product design	Number of products	$	78,000		2	Products

Activity Measure	Product C	Product D
Machine-hours	9,000	6,000
Number of setups	50	150
Number of products	1	1

Using the ABC system, how much total overhead cost would be assigned from all of the activities to Product D?

Multiple Choice

• $261,500

• $271,500

• $251,500

• $301,500

3.

In its first year of operations a company produced and sold 70,000 units of Product A at a selling price of $20 per unit and 17,500 units of Product B at a selling price of $40 per unit. Additional information relating to the companys only two products is shown below:

	Product A				Product B				Total
Direct materials	$	436,300			$	251,700			$	688,000
Direct labor	$	200,000			$	104,000				304,000
Manufacturing overhead										608,000
Cost of goods sold									$	1,600,000

The company created an activity-based costing system that allocated its manufacturing overhead costs to four activities as follows:

						Activity
Activity Cost Pool (and Activity Measure)	Manufacturing Overhead						Product A			Product B			Total
Machining (machine-hours)		$	213,500				90,000			62,500			152,500
Setups (setup hours)			157,500				75			300			375
Product design (number of products)			120,000				1			1			2
Other (organization-sustaining costs)			117,000				NA			NA			NA
Total manufacturing overhead cost		$	608,000

The companys ABC implementation team also concluded that $50,000 and $100,000 of the companys advertising expenses could be directly traced to Product A and Product B, respectively. The remainder of its selling and administrative expenses ($401,100) was organization-sustaining in nature.

How much of the companys total costs that would be included in its traditional absorption costing income statement should not be assigned to Product A or Product B by the activity-based costing system that the company uses for internal management purposes?

Multiple Choice

• $638,100

• $518,100

• $401,100

• $117,000