10

Assume the following information:

	Amount
Selling price	$ 30
Variable expense per unit	$ 12
Fixed expenses	$ 18,000	per month
Unit sales	2,200	per month

The degree of operating leverage is closest to:

Multiple Choice

• 1.97.

• 1.83.

• 0.14.

• 0.33.

Activity-based costing (ABC) is a costing method that provides managers with cost information for

Multiple Choice

• strategic and other decisions that potentially affect capacity and therefore "fixed" as well as variable costs.

• identifying the net present value of future cash flows associated with investment opportunities.

• identifying relevant costs when choosing between alternatives.

• preparing financial reports for external parties.

12

Assume a company manufactures only two products14,000 units of Product A and 6,000 units of Product B. 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 A and B:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost	Expected Activity
Machining	Machine-hours	$ 300,000	18,750	MH
Machine setups	Number of setups	$ 150,000	200	Setups
Product design	Number of products	$ 78,000	2	Products

Activity Measure	Product A	Product B
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 A?

Multiple Choice

• $210,500

• $220,500

• $230,500

• $200,500