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

question 22

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:
$\begin{array}{|l|l|l|l|l|l|l|c|c|}\hline\text { Activity } & \text { Cost Pool } & \text { Driver } & \begin{array}{c}\text { Pool } \\\text { Rate }\end{array} & \begin{array}{c}\text { Model F } \\\text { Activity }\end{array} & \begin{array}{c}\text { Model F } \\\text { Cost }\end{array} & \begin{array}{c}\text { Model G } \\\text { Activity }\end{array} & \begin{array}{c}\text { Model G } \\\text { Cost }\end{array} & \text { Total } \\\hline \begin{array}{l}\text { Material } \\\text { handling }\end{array} & \$ 40,000 & 10,000 & \$ 4 & 4,000 & \$ 16,000 & 6,000 & \$ 24,000 & \$ 40,000 \\\hline \begin{array}{l}\text { Labor related } \\\text { overhead }\end{array} & \$ 120,000 & 20,000 & \$ 6 & 8,000 & \$ 48,000 & 12,000 & \$ 72,000 & \$ 120,000 \\\hline\text { Getups } & \$ 60,000 & 12,000 & \$ 5&5,000 & \$ 25,000 & 7,000 & \$ 35,000 & \$ 60,000 \\\hline \text { Product design } & \$ 100,000 & 20 & \$ 5,000 & 8 & \$ 40,000 & 12 & \$ 60,000 & \$ 100,000 \\\hline \text { Batch inspections } & \$ 120,000 & 24,000 & \$ 5&10,000&\$50,000&14,000&\$70,000&\$120,000 \\\hline \text { Central purchasing } & \$ 70,000 & 70 & \$ 1,000 & 30 & \$ 30,000 & 40 & \$ 40,000& \$ 70,000 \\\hline \text { total } & & & & & \$ 209,000 & & \$ 301,000& \$ 510,000 \\\hline\end{array}$
Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment.
Under this new approach, what is the new pool rate for batch inspection costs?

• A)0
• B)$5
• C)$10.625
• D)$15.525

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Definitions:

Human Capital

Abilities, insights, and practice held by a person or community, seen through the lens of their contribution or expenditure to a corporation or state.

Physical Capital

Tangible assets that are used in the production process, such as machinery, buildings, and equipment.

Technology

The application of scientific knowledge for practical purposes, especially in industry, where it affects methods of production, communication, and transportation.

Natural Resources

Materials or substances that occur in nature which can be utilized for economic gain, such as minerals, forests, water, and fertile land.