QUIZ REVIEW
HOMEWORK TUTORIAL – CHAPTER THREE – SET 3
STEPS APPLICABLE IN SOLVING ALL HOMEWORK PROBLEMS
1. Scan the problem.
2. Locate what is required.
3. Find the formula which applies to the requirement.
4. Make your calculation based on the formula.
FORMULAS: CHAPTER THREE
Activity Rate: Total Cost in Activity Cost Pool//Total Activity in Activity Cost Pool
Applied Cost: Activity Rate X Activity Required = Applied Cost per Activity
Cost per Unit: Sum of Activity Costs for all Activities/Unit Production and Sales
Over/Under Applied Overhead: Actual Overhead – Applied Overhead
Traditional Predetermined Overhead Rate: Estimated manufacturing overhead/estimated
activity in the allocation base
Traditional Applied Overhead: Traditional Predetermined Overhead Rate X actual
activity
1. Matt Company uses activity-based costing. The company has two products: A and
B. The annual production and sales of Product A is 8,000 units and of Product B
is 6,000 units. There are three activity cost pools, with estimated total cost and
expected activity as follows:
Activity Estimated Expected Activity
Cost Pool Cost Product A Product B Total
Activity 1 $20,000 100 400 500
Activity 2 $37,000 800 200 1,000
Activity 3 $91,200 800 3,000 3,800
The cost per unit of Product A under activity-based costing is closest to:
Activity Rate: Total Cost in Activity Cost Pool//Total Activity in Activity Cost
Pool
Calculation: Activity 1 – 20,000/500 = 40
Activity 2 – 37,000/1,000 = 37
Activity 3 – 91,200/3,800 = 24
Applied Cost: Activity Rate X Activity Required = Applied Cost per Activity
Calculation: Activity 1 (Product A) 100 X 40 = 4,000
Activity 2 (Product A) 800 X 37 = 29,600
Activity 3 (Product A) 800 X 24 = 19,200
Total Applied Cost (Product A)
(Sum of Activity Cost Product A) 52,800
Cost per Unit: Sum of Activity Costs for all Activities/Unit Production and Sales
Calculation: 52,800/8,000 = 6.60
A) $2.40.
B) $3.90.
C) $10.59.
D) $6.60.
Use the following to answer questions 2-5:
Acton Company has two products: A and B. The annual production and sales of Product
A is 800 units and of Product B is 500 units. The company has traditionally used direct
labor-hours as the basis for applying all manufacturing overhead to products. Product A
requires 0.3 direct labor-hours per unit and Product B requires 0.2 direct labor-hours per
unit. The total estimated overhead for next period is $92,023.
The company is considering switching to an activity-based costing system for the purpose
of computing unit product costs for external reports. The new activity-based costing
system would have three overhead activity cost pools—Activity 1, Activity 2, and
General Factory—with estimated overhead costs and expected activity as follows:
Estimate
d
Activity Overhea Expected Activity
d
Cost Pool Costs Product Product Total
A B
Activity 1 $14,487 500 600 1,100
Activity 2 $64,800 2,500 500 3,000
General Factory $12,736 240 100 340
Total $92,023
Note: The General Factory activity cost pool's costs are allocated on the basis of
direct labor-hours.
2. The predetermined overhead rate under the traditional costing system is closest to:
Traditional Predetermined Overhead Rate: Estimated manufacturing
overhead/estimated activity in the allocation base
Calculation: 92,023/340 (total from General Factory Pool – see note) =
270.66
A) $37.46.
B) $21.60.
C) $13.17.
D) $270.66.
3. The overhead cost per unit of Product B under the traditional costing system is
closest to:
Traditional Applied Overhead: Traditional Predetermined Overhead Rate X
actual activity
Calculation: 270.66 X 100 = 27,066 On per unit basis – 27,066/500 = 54.13
A) $54.13.
B) $7.49.
C) $4.32.
D) $2.63.
4. The predetermined overhead rate (i.e., activity rate) for Activity 1 under the
activity-based costing system is closest to:
Activity Rate: Total Cost in Activity Cost Pool//Total Activity in Activity Cost
Pool
Calculation: 14,487/1100 = 13.17
A) $28.97.
B) $13.17.
C) $83.66.
D) $24.15.
5. The overhead cost per unit of Product A under the activity-based costing system is
closest to:
Activity Rate: Total Cost in Activity Cost Pool//Total Activity in Activity Cost
Pool
Calculation: Activity 2 - 64,8000/3,000 = 21.60; Activity 3 – 12,736/340 =
37.46; Activity 1 - 13,17 (from Problem 4)
Applied Cost: Activity Rate X Activity Required = Applied Cost per Activity
Calculation: 13.17 X 500 = 6,585
21.60 X 2,500 = 54,000
37.46 X 240 = 8,990
Total 69,575
Cost per Unit: Sum of Activity Costs for all Activities/Unit Production and Sales
Calculation: 69,575/800 = 86.97
A) $86.97.
B) $70.79.
C) $81.20.
D) $11.24.
Use the following to answer questions 6-10:
Brenot Corporation uses activity-based costing to determine product costs for external
financial reports. Activity rates computed at the beginning of the year are used to apply
manufacturing overhead costs to products. The company has provided the following data
concerning its activity-based costing system.
The data used to develop activity rates were:
Estimated
Overhead
Activity Cost Pools Cost Expected Activity
Machine related (machine-hours) $379,600 13,000 MHs
Batch setup (setups) $1,144,800 27,000 setups
General factory (direct labor-hours) $420,500 29,000 DLHs
The actual activity for the year was:
Actual Activity for the
Year
Activity Cost Pools Total Product X Product Y
Machine related (machine-hours) 13,000 11,000 2,000
Batch setup (setups) 26,000 3,000 23,000
General factory (direct labor-hours) 30,000 24,000 6,000
The actual total manufacturing overhead cost incurred for the year was $1,942,300.
6. The activity rate computed at the beginning of the year for the batch setup activity
cost pool is closest to:
Activity Rate: Total Cost in Activity Cost Pool//Total Activity in Activity Cost
Pool
Calculation: 1,144,800/27,000 = 42.40
A) $42.40
B) $74.80
C) $49.80
D) $381.60
7. The total amount of overhead cost allocated to Product X during the year would be
closest to:
Activity Rate: Total Cost in Activity Cost Pool//Total Activity in Activity Cost
Pool
Applied Cost: Activity Rate X Activity Required = Applied Cost per Activity
Calculation: Machine related 379,600/13,000 = 29.20 x 11,000 = 321,200
Batch Setup 1,144,800/27,000 = 42.40 X 3,000 = 127,200
General Factory 420,500/29,000 = 14.50 X 24,000 = 348,000
Total 796,400
A) $1,145,000
B) $972,450
C) $796,400
D) $224,000
8.The credits to the Manufacturing Overhead control account during the year (prior to
closing out the balance) would have totaled:
Activity Rate: Total Cost in Activity Cost Pool//Total Activity in Activity Cost
Pool
Applied Cost: Activity Rate X Activity Required = Applied Cost per Activity
Calculation: Machine related 379,600/13,000 = 29.20 x 13,000 = 379,600
Batch Setup 1,144,800/27,000 = 42.40 X 26,000 = 1,102,400
General Factory 420,500/29,000 = 14.50 X 30,000 = 435,000
Total 1,917,000
A) $1,932,300
B) $1,929,650
C) $1,917,000
D) $1,942,300
9.The debits to the Manufacturing Overhead control account during the year (prior to
closing out the balance) would have totaled:
Answer given in description (1,942,300)
A) $1,932,200
B) $1,929,650
C) $1,942,300
D) $1,917,000
10. The manufacturing overhead for the year is underapplied (overapplied) by:
Over/Under Applied Overhead: Actual Overhead – Applied Overhead
Calculation: 1,942,300 – 1,917,000 = 25,300
A) ($25,300)
B) $25,300
C) ($12,650)
D) $12,650
