Appleby Manufacturing Uses an Activity-Based Costing System Jones Manufacturing Has Used Activity Based Costing to Assign Costs

question 19

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: $$\begin{array}{l}\begin{array} { l r r } & \text { Model F } & \text { Model G } \\\text { Units produced } & 24,000 & 30,000 \\\text { Machine hours } & 7,500 & 8,500 \\\text { Direct labor hours } & 8,000 & 12,000 \\\text { Material handling (number of moves) } & 4,000 & 6,000 \\\text { Setups } & 5,000 & 7,000 \\\text { Purchase orders } & 30 & 40 \\\text { Inspections } & 10,000 & 14,000 \\\text { Product line variations } & 8 & 12\end{array}\\\text { The following overhead costs are reported for the following activities of the production process: }\\\begin{array} { l r } \text { Material handling } & \$ 40,000 \\\text { Labor-related overhead } & 120,000 \\\text { Setups } & 60,000 \\\text { Product design } & 100,000 \\\text { Batch inspections } & 120,000 \\\text { Central purchasing } & 70,000\end{array}\end{array}$$ 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.
Using ABC as the benchmark, what is the percentage error in the cost assigned to Model G using the approximately relevant ABC approach? (round to 4 decimal places)

• A)0.25%
• B)0.12%
• C)1.2%
• D)2.5%

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Definitions:

Mutual Interdependence

A situation in which the actions of one firm in an oligopolistic market influence, and are influenced by, the decisions of other firms within the same market.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, allowing for competition on factors other than price.

Pure Competition

A market structure characterized by a large number of small firms, identical products, and no barriers to entry or exit, allowing for perfect knowledge and resource mobility.

Pure Monopoly

A market structure where a single seller dominates the market with no close substitutes for the product or service offered.