ACCTG 10A – Activity-based Costing Quiz

September 4, 2018

PROBLEM 1
Special Products recently installed an activity-based relational data base. Using the information contained in the activity
relational table, the following pool rates were computed:
$200 per purchase order $15 per machine hour, process B
$12 per machine hour, process A $40 per engineering hour
Two products are produced by Special Products: A and B. Each product has an area in the plant that is dedicated to its
production. The plant has two manufacturing processes, process A and process B. Other processes include engineering,
product handling and procurement. The product relational table for Special is as follows:
Activity Usage
Activity Driver # Name Product A Product B
1 Units 200,000 25,000
2 Purchase orders 250 125
3 Machine hours 80,000 10,000
4 Engineering hours 1,250 1,500
1. What is the unit cost of Product A?
a. $4.71 b. $3.76 c. $252.00 d. $5.30
2. What is the unit cost of Product B?
a. $9.40 b. $6.00 c. $252.00 d. $6.41

PROBLEM 2
The Oilfield plant has two categories of overhead: maintenance and inspection. Costs expected for these categories for the
coming year are as follows:
Maintenance P100,000 Inspection 150,000
The plant currently applies overhead using direct labor hours and expected capacity of 50,000 direct labor hours. The
following data have been assembled for use in developing a bid for a proposed job:
Direct materials P1,000 Number of inspections 4
Direct labor P4,000 Direct labor hours 800
Machine hours 500
The total number of expected machine hours for all jobs during the year is 25,000, and the total expected number of
inspections is 1,500.
3. Using activity-based costing system and the appropriate activity drivers, the total cost of the potential job would be
A. P2,400 B. P3,600 C. P7,400 D. P7,750
4. Using direct labor hours to assign overhead, the total cost of the potential job would be
A. P 5,000 B. P11,000 C. P 8,000 D. P 9,000

PROBLEM 3
Hazel Company uses activity-based costing. The company produces two products: coats and hats. The annual production and
sales volume of coats is 8,000 units and of hats is 6,000 units. There are three activity cost pools with the following expected
activities and estimated total costs:
Activity Estimated Expected Activity Expected Activity Total
Cost Pool Cost Coats Hats
Activity 1 $20,000 100 400 500
Activity 2 $37,000 800 200 1,000
Activity 3 $91,200 800 3,000 3,800
5. Refer to Hazel Company. Using ABC, the cost per unit of coats is approximately:
a. $2.40 c. $ 6.60
b. $3.90 d. $10.59
6. Refer to Hazel Company. Using ABC, the cost per unit of hats is approximately:
a. $2.40 c. $12.00
b. $3.90 d. $15.90

PROBLEM 4
McMahon Company would like to institute an activity-based costing system to price products. The company's Purchasing
Department incurs costs of $550,000 per year and has six employees. Purchasing has determined the three major activities
that occur during the year.
Allocation # of Total
Activity Measure People Cost
Issuing purchase orders # of purchase orders 1 $150,000
Reviewing receiving reports # of receiving reports 2 $175,000
Making phone calls # of phone calls 3 $225,000

During the year, 50,000 phone calls were made in the department; 15,000 purchase orders were issued; and 10,000 shipments
were received. Product A required 200 phone calls, 150 receiving reports, and 50 purchase orders. Product B required 350
phone calls, 400 receiving reports, and 100 purchase orders.
 
7. Determine the amount of purchasing department cost that should be assigned to each of these products. (6 pts)
8. Determine purchasing department cost per unit if 1,500 units of Product A and 3,000 units of Product B were manufactured
during the year. (6 pts)