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Garrison Practice Exam Chapter 6

Lubelchek Company uses activity-based costing to allocate costs to its two products, A and B. The summary provides the activity rate and total costs allocated to each product for one of the company's activity cost pools. Barabanova Company also uses activity-based costing. It has two products, A and B, and three activity cost pools. The summary calculates the total overhead cost allocated to Product B and the overhead cost per unit of Product B under the activity-based costing system. Finally, the summary shows the calculation of Product B's profit margin using the activity-based costing information provided, including revenues, direct costs, and overhead costs allocated to Product B.

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162 views

Garrison Practice Exam Chapter 6

Lubelchek Company uses activity-based costing to allocate costs to its two products, A and B. The summary provides the activity rate and total costs allocated to each product for one of the company's activity cost pools. Barabanova Company also uses activity-based costing. It has two products, A and B, and three activity cost pools. The summary calculates the total overhead cost allocated to Product B and the overhead cost per unit of Product B under the activity-based costing system. Finally, the summary shows the calculation of Product B's profit margin using the activity-based costing information provided, including revenues, direct costs, and overhead costs allocated to Product B.

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oohley
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Garrison (Asian Edition) Practice Exam – Chapter 7

Print these pages. Answer each of the following questions, explaining your answers or
showing your work, as appropriate, and then discuss it with in the forum

1. Lubelchek Company uses activity-based costing to determine the costs of its two
products: A and B. The estimated total cost and expected activity for one of the
company's three activity cost pools are as follows:

Expected Activity
Estimated Cost Product A Product B
$28,000 400 300

Part (a) What is the activity rate under the activity-based costing system for this
activity?
Activity rate = Estimated cost ÷ total expected activity
Activity rate = $28,000 ÷ (400+300) = $40.00

Part (b) How much total cost will be assigned to Products A and B for this activity?
Product cost allocation for this activity = Expected activity × activity rate
Product A cost allocation for this activity = 400 × $40 = $16,000
Product B cost allocation for this activity = 300 × $40 = $12,000

2. Barabanova Company has two products: A and B. The annual production and sales
level of Product A is 18,188 units. The annual production and sales level of Product B is
31,652. The company uses activity-based costing and has prepared the following analysis
showing the estimated total cost and expected activity for each of its three activity cost
pools:

Activity Estimated Expected Activity


Cost Pool Cost Product A Product B
Activity 1 $ 80,000 200 800
Activity 2 360,000 600 5,400
Activity 3 58,400 1,000 500

Part (a) What is the total overhead cost allocated to Product B under activity-based
costing?
Activity 1 = ($80,000 ÷ (200+800)) × 800 = $64,000
Activity 2 = ($360,000 ÷ (600+5,400)) × 5,400 = $324,000
Activity 3 = ($58,400 ÷ (1,000_500)) × 500 = $19,466.67
Total overhead cost per unit of Product B = $407,466.6

Part (b) What is the overhead cost per unit of Product B under activity-based
costing?
Overhead cost per unit of product = total overhead cost per unit of product B ÷ number of
units produced
Overhead cost per unit of product = $407,466.67 ÷ 31,562
Overhead cost per unit of product = $12.87

3. Barabanova Company has two products: A and B. The annual production and sales
level of Product A is 18,188 units. The annual production and sales level of Product B is
31,652. The company uses activity-based costing and has prepared the following analysis
showing the estimated total cost and expected activity for each of its three activity cost
pools:

Activity Estimated Expected Activity


Cost Pool Cost Product A Product B
Activity 1 $ 80,000 200 800
Activity 2 360,000 600 5,400
Activity 3 58,400 1,000 500

(Note that the information provided above is the same as that provided for the previous
question.) The following information is also available:

Sales price per unit $100.00


Direct material per unit 20.00
Direct labor per unit 10.00

Compute the profit margin for Product B using activity-based costing.


Sales revenues ($100 × 31,652 units) $ 3,165,200
Direct materials ($20 × 31,652 units) 633,040
Direct labors ($10 × 31,652 units) 316,520
Activity 1 overhead cost 64,000
Activity 2 overhead cost 324,000
Activity 3 overhead cost 19,467 1,357,027
Product margin $ 1,808,173

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