Managerial Accounting Eric Noreen 5th edition – Test Bank
Managerial Accounting for Managers, 5e (Noreen)
Appendix 3A: Activity-Based Absorption Costing
1) Feauto Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor hours (DLHs). The company has two products, I63E and E76I, about which it has provided the following data:
|
|
I63E |
E76I |
|||||
|
Direct materials per unit |
$ |
19.90 |
|
$ |
54.40 |
|
|
|
Direct labor per unit |
$ |
12.00 |
|
$ |
31.50 |
|
|
|
Direct labor hours per unit |
|
0.80 |
|
|
2.10 |
|
|
|
Annual production (units) |
|
30,000 |
|
|
10,000 |
|
|
The company’s estimated total manufacturing overhead for the year is $2,063,250 and the company’s estimated total direct labor hours for the year is 45,000.
The company is considering using a form of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:
|
Activities and Activity Measures |
Estimated Overhead Cost |
||
|
Assembling products (DLHs) |
$ |
720,000 |
|
|
Preparing batches (batches) |
|
263,250 |
|
|
Product support (product variations) |
|
1,080,000 |
|
|
Total |
$ |
2,063,250 |
|
|
|
Expected Activity |
||
|
|
I63E |
E76I |
Total |
|
DLHs |
24,000 |
21,000 |
45,000 |
|
Batches |
1,080 |
675 |
1,755 |
|
Product variations |
2,115 |
1,485 |
3,600 |
The manufacturing overhead that would be applied to a unit of product I63E under the company’s traditional costing system is closest to:
A) $12.80
B) $39.35
C) $76.03
D) $36.68
Answer: D
Explanation:
|
|
|
|
Product I63E 30,000 units × 0.80 direct labor-hours per unit |
24,000 |
|
Product E76I 10,000 units × 2.10 direct labor-hours per unit |
21,000 |
|
Total direct labor-hours |
45,000 |
Predetermined overhead rate = $2,063,250 ÷ 45,000 direct labor-hours = $45.85 per direct labor-hour
Overhead applied to a unit of product I63E = $45.85 per direct labor-hours × 0.80 direct labor-hours per unit = $36.68 per unit
Difficulty: 2 Medium
Topic: Activity-Based Absorption Costing
Learning Objective: 03-05 (Appendix 3A) Use activity-based absorption costing to compute unit product costs.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: FN Measurement; BB Critical Thinking
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