1.

Rosie Company has two divisions, Division A and Division B. Rosie Company has been using a traditional overhead allocation technique based on direct labor hours. For the most recent year, the predetermined overhead rate was $40 per direct labor hour. All of Rosie Company's products are sold in competitive markets. An activity-based costing analysis of Rosie's operations has identified three different cost drivers. Data about the cost drivers for the most recent year are given below:

Cost Drivers	Number of events per year	Cost pool
X	1,000	$100,000
Y	500	75,000
Z	20	60,000
Total		$235,000

The following data relate to cost driver event activity within the two divisions during the most recent year:

	Division A	Division B	Total
Cost Driver X events	600	400	1,000
Cost Driver Y events	200	300	500
Cost Driver Z event	15	5	20
Direct Labor Hours	5,000	875	5,875

Which ONE of the following statements is MOST CORRECT?

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for Division B would have increased by $100,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for Division A would have increased by $100,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for Division B would have increased by $35,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, the number of direct labor hours worked would have been reduced to 5,000 from 5,875.

Using the traditional overhead allocation technique, Division B profits have been understated and Division A profits have been overstated.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for Division A would have increased by $35,000.

If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, total net income for Rosie Company would have been the same.

2.

Didericksen Company is a manufacturer with a process costing system. Didericksen's ending work-in-process inventory information for the past three years is as follows:

	Year 1	Year 2	Year 3
Number of physical units	1,000	??????	??????
Percent completed with respect to direct materials	100%	100%	100%
Percent completed with respect to conversion cost	30%	75%	40%
In addition, the following information relates to production activity during the three years.
	Year 1	Year 2	Year 3
Number of physical units started and completed	5,000	5,000	5,000
Equivalent units of production (in terms of conversion cost)	5,820	6,825	6,055

Compute Didericksen Company's ending work-in-process inventory (in terms of number of units) for Year 2 and for Year 3. Note: The conversion cost completion percentages are for ending work-in-process inventory in the year indicated.

Year 2 1,536 physical units; Year 3 1,367 physical units

Year 2 1,500 physical units; Year 3 175 physical units

Year 2 2,033 physical units; Year 3 1,700 physical units

Year 2 2,033 physical units; Year 3 1,367 physical units

Year 2 6,100 physical units; Year 3 1,175 physical units

Year 2 1,500 physical units; Year 3 1,700 physical units

Year 2 4,500 physical units; Year 3 175 physical units

Year 2 1,536 physical units; Year 3 1,678 physical units

3.

Solar Salt Company has two divisions. Sales, direct materials cost, and direct labor cost data for Solar Salt's two divisions are not available. However, manufacturing overhead and gross profit data for the two divisions are available, as follows:

	Agricultural Products	Retail Products
Manufacturing overhead*	$450,000	$250,000
Gross profit	150,000	100,000

*Manufacturing overhead is allocated to production based on the amount of direct labor cost. Solar Salt has determined that its total manufacturing overhead cost of $700,000 is a mixture of unit-level costs, batch-level costs, and product line costs. Solar Salt has assembled the following information concerning the manufacturing overhead costs, the annual number of units produced, production batches, and number of product lines in each division:

	Total Manufacturing Overhead Costs	Agricultural Products	Retail Products
Unit-level overhead	$210,000	7,500	13,500
Batch-level overhead	280,000	50 batches	90 batches
Product line overhead	210,000	10 lines	18 lines
	$700,000

How much will GROSS PROFIT in each of the divisions be if Solar Salt adopts an activity-based costing system?

Agricultural, $350,000; Retail, $100,000

Agricultural, $350,000; Retail, loss of $100,000

Agricultural, $350,000; Retail, $300,000

Agricultural, loss of $50,000; Retail, loss of $100,000

Agricultural, $50,000; Retail, $200,000

Agricultural, $150,000; Retail, $100,000

Agricultural, $250,000; Retail, $450,000

Agricultural, loss of $50,000; Retail, $300,000