Use the following to answer questions 1-3:

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:

Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product A Product B Total
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.)

1. The predetermined overhead rate under the traditional costing system is closest to:
A) $37.46.
B) $21.60.
C) $13.17.
D) $270.66.

2. The overhead cost per unit of Product B under the traditional costing system is closest to:
A) $54.13.
B) $7.49.
C) $4.32.
D) $2.63.

3. The predetermined overhead rate (i.e., activity rate) for Activity 1 under the
activity-based costing system is closest to:
A) $28.97.
B) $13.17.
C) $83.66.
D) $24.15.

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Use the following to answer questions 4-5:

Forse Florist specializes in large floral bouquets for hotels and other commercial spaces. The
company has provided the following data concerning its annual overhead costs and its activity
based costing system:

Overhead costs:
Wages and salaries $80,000
Other expenses $40,000
Total $120,000

Distribution of resource consumption:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining
costs.
The amount of activity for the year is as follows:
Activity Cost Pool Activity
Making bouquets 60,000 bouquets
Delivery 5,000 deliveries

4. What would be the total overhead cost per bouquet according to the activity based costing
system? In other words, what would be the overall activity rate for the making bouquets
activity cost pool? (Round to the nearest whole cent.)
A) $0.90
B) $1.05
C) $1.20
D) $1.10

5. What would be the total overhead cost per delivery according to the activity based
costing system? In other words, what would be the overall activity rate for the deliveries
activity cost pool? (Round to the nearest whole cent.)
A) $6.00
B) $6.60
C) $7.20
D) $6.80

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6. Daba Company manufactures two products, Product F and Product G. The company
expects to produce and sell 1,400 units of Product F and 1,800 units of Product G during
the current year. The company uses activity-based costing to compute unit product costs
for external reports. Data relating to the company's three activity cost pools are given
below for the current year:

Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product F Product G Total
Machine setups $10,800 80 100 180
Purchase orders $77,520 510 1,010 1,520
General factory $75,920 2,240 3,600 5,840

Required:
Using the activity-based costing approach, determine the overhead cost per unit for each
product. (Show your work and label all computations.)

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Answer Key -- Quiz Chapter 8 Fall 1999

1. D $270.66.
Format: Multiple Choice
Difficulty: Medium
Type: (None)
Origin: Chapter 8, Activity-Based Costing: A .......51
Refer To: Ref. 8-8

2. A $54.13.
Format: Multiple Choice
Difficulty: Medium
Type: (None)
Origin: Chapter 8, Activity-Based Costing: A .......52
Refer To: Ref. 8-8

3. B $13.17.
Format: Multiple Choice
Difficulty: Medium
Type: (None)
Origin: Chapter 8, Activity-Based Costing: A .......53
Refer To: Ref. 8-8

4. D $1.10
Format: Multiple Choice
Difficulty: Medium
Type: (None)
Origin: Chapter 8, Activity-Based Costing: A .......67
Refer To: Ref. 8-14

5. D $6.80
Format: Multiple Choice
Difficulty: Medium
Type: (None)
Origin: Chapter 8, Activity-Based Costing: A .......68
Refer To: Ref. 8-14

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6.The overhead rates for each activity center are as follows:

Estimated
Activity Overhead Expected Overhead
Cost Pool Costs Activity Rate
Machine setups $10,800 180 $60.00
Purchase orders $77,520 1,520 $51.00
General factory $75,920 5,840 $13.00

The overhead cost charged to each product is:

Product F Product G
Activity Amount Activity Amount
Machine setups 80 $ 4,800 100 $ 6,000
Purchase orders 510 26,010 1,010 51,510
General factory 2,240 29,120 3,600 46,800
Total overhead cost $59,930 $104,310
aaaaaa aaaaaaa

Overhead cost per unit: