21

Assume a company produces and sells only two products14,000 units of Product A and 6,000 units of Product B. The selling prices are $65 per unit for Product A and $96 per unit for Product B. Product As direct materials and direct labor costs per unit are $30 and $10, respectively. Product Bs direct materials and direct labor costs per unit are $34 and $20, respectively. The company uses a plantwide overhead rate based on direct labor dollars. 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	15,000	MH
Machine setups	Number of setups	$ 150,000	200	Setups
Product design	Number of products	$ 80,000	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 companys plantwide approach, the total overhead cost allocated to Product A is closest to (Round your intermediate calculations to 2 decimal places.):

Multiple Choice

• $325,600.

• $305,600.

• $255,600.

• $285,600.

20

Which of the following statements is true?

Multiple Choice

• Organization-sustaining activity costs should be allocated to products using a batch-level activity measure.

• Organization-sustaining activity costs should be allocated to products using a product-level activity measure.

• Organization-sustaining activity costs should not be allocated to products.

• Organization-sustaining activity costs should be allocated to products using an organization-level activity measure.

19

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 Cost Pool (and Activity Measure)	Manufacturing Overhead	Activity
		Product A	Product B	Total
Machining (machine-hours)	$ 213,500	81,300	71,200	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. The companys activity-based costing system would allocate how much manufacturing overhead to Product A?

Multiple Choice

• $200,520

• $210,320

• $203,520

• $205,320