Appleby Manufacturing Uses an Activity-Based Costing System The Following Overhead Costs Are Reported for the Following Activities

question 196

Multiple Choice

Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows: $\begin{array} { l r r } & \text { Model F } & \text { Model G } \\ \text { Units produced } & 24,000 & 30,000 \\ \text { Machine hours } & 7,500 & 8,500 \\ \text { Direct labor hours } & 8,000 & 12,000 \\ \text { Material handling (number of moves) } & 4,000 & 6,000 \\ \text { Setups } & 5,000 & 7,000 \\ \text { Purchase orders } & 30 & 40 \\ \text { Inspections } & 10,000 & 14,000 \\ \text { Product line variations } & 8 & 12 \end{array}$
The following overhead costs are reported for the following activities of the production process:
$\begin{array} { l r } \text { Material handling } & \$ 40,000 \\ \text { Labor-related overhead } & 120,000 \\ \text { Setups } & 60,000 \\ \text { Product design } & 100,000 \\ \text { Batch inspections } & 120,000 \\ \text { Central purchasing } & 70,000 \end{array}$
Jones manufacturing has used activity based costing to assign costs to Models $F$ and $G$ as given in the table below:
$\begin{array}{|l|c|l|c|c|c|c|c|c|}\hline\text { Activity } & \text { Cost Pool } & \text { Driver } & \begin{array}{c}\text { Pool } \\\text { Rate }\end{array} & \begin{array}{c}\text { Model F } \\\text { Activity }\end{array} & \begin{array}{c}\text { Model F } \\\text { Cost }\end{array} & \begin{array}{c}\text { Model G } \\\text { Activity }\end{array} & \begin{array}{c}\text { Model G } \\\text { Cost }\end{array} & \text { Total } \\\hline \begin{array}{l}\text { Material } \\\text { handling }\end{array} & \$ 40,000 & 10,000 & \$ 4 & 4,000 & \$ 16,000 & 6,000 & \$ 24,000 & \$ 40,000 \\\hline \text { Labor related } & \$ 120,000 & 20,000 & \$ 6 & 8,000 & \$ 48,000 & 12,000 & \$ 72,000 & \$ 120,000 \\\text { overhead }\\\hline \text { Setups } & \$ 60,000 & 12,000 & \$ 5 & 5,000 & \$ 25,000 & 7,000 & \$ 35,000 & \$ 60,000 \\\hline \begin{array}{l}\text { Product } \\\text { design }\end{array} & \$ 100,000 & 20 & \$ 5,000 & 8 & \$ 40,000 & 12 & \$ 60,000 & \$ 100,000 \\\hline \begin{array}{l} \text { Batch }\\\text { Inspections }\end{array} & \$ 120,000 & 24,000 & \$ 5 & 10,000 & \$ 50,000 & 14,000 & \$ 70,000 & \$ 120,000 \\\hline \begin{array}{l} \text { Central }\\\text { purchasing }\end{array} & \$ 70,000 & 70 & \$ 1,000 & 30 & \$ 30,000 & 40 & \$ 40,000 & \$ 70,000 \\\hline\text { total }&&&&&\$209,000&&\$301,000&\$510,000\\\hline\end{array}$ Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment.
Under this new approach, which two activities would be selected as the cost pools?

• A)materials handling and labor related
• B)labor related and batch inspections
• C)product design and batch inspections
• D)materials handling and central purchasing

---

Definitions:

Consolidated Financial Statements

Financial statements that present the assets, liabilities, and operating results of a parent company and its subsidiaries as if the group were a single entity.

Ownership Percentage

The share of a company or property owned by an individual or entity, often expressed as a portion of 100%.

Direct Combination Costs

Expenses directly associated with the process of merging two or more companies, such as legal fees, advisory services, and administrative expenses.

Contingent Consideration

A future payment in a business acquisition that is dependent on specific conditions being met, often related to the target company's performance.