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

question 117

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.
Under the equally accurate reduced ABC system, what are the global consumption ratios for Model F and Model G respectively? (round to 2 decimal places)

• A)0.41: 0.59
• B)0.44; 0.56
• C)0.40; 0.60
• D)0.50; 0.50

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Definitions:

Accruals

An accounting practice that documents income and expenditures at the time they happen, irrespective of the timing of the associated cash transactions.

Recorded

The act of documenting transactions, changes, or events in the relevant books or databases for future reference and analysis.

Incurred

Refers to costs or expenses that have been realized or consumed in the operation of a business, often indicating that an economic event affecting the company's finances has taken place.

Depreciates

The process by which the value of an asset decreases over time, usually due to wear and tear or obsolescence.