Assume that a company makes only three products: Product A, Product B, and Product C. Currently, the company uses a conventional cost system that relies on plantwide overhead cost allocation based on direct labor-hours. It is considering replacing its conventional cost system with an activity-based costing (ABC) system. The ABC system would include a total of four activities: Assembly (allocated to products based on direct labor-hours), Machine Setups (allocated to products based on number of setups), Material Handling (allocated to products based on the number of material moves), and Product Design (allocated to products based on the number of products).

	Product A		Product B		Product C
Number of units produced	1,000	units	7,000	units	2,000	units
Direct labor hours per unit	2	hours	2	hours	2	hours
Number of setups	30	setups	50	setups	20	setups
Number of material moves	600	moves	400	moves	200	moves
Number of products	1	product	1	product	1	product

Using the activity-based costing approach, what percent of the companys total Material Handling activity cost would be allocated to Product B?

Multiple Choice

• 70%

• 25%

• 40%

• 33%