1.Q13-1: Williams, a professional services firm has overhead of 625,000. It operates three divisions and an accountant's estimate of the overhead allocation per division is 38% for Division 1, 22% for Division 2 and 40% for Division 3. The divisions respectively bill 4,100, 1,950 and 3,300 hours.

The business-wide overhead recovery rate and the cost-centre overhead recovery rate for Division 2 are, respectively:

Question options:

55.55 and 62.50

62.50 and 55.55

57.93 and 72.51

66.84 and 70.51

2.Q13-3: The method of determining overhead allocation using absorption costing and that under activity-based costing differs because:

Question options:

Absorption costing is based on a business-wide allocation of overheads whereas activity-based costing is based on a departmental (or cost centre) allocation of overheads

Activity-based costing allocates costs to cost pools and traces costs to products based on cost drivers whereas absorption costing allocates costs to cost centres and then to products based on a measure of activity such as direct labour hours

Activity-based costing can never accurately allocate overheads to products because the method of allocation is arbitrary whereas absorption costing is always more reliable because it uses predictable causes of overhead costs to trace those costs to products

Absorption costing allocates costs to cost pools and traces costs to products based on cost drivers whereas activity-based costing allocates costs to cost centres and then to products based on a measure of activity such as direct labour hours