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

question 8

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, using consumption ratios for labor related and batch inspections, what allocation rate would be used to assign labor related costs? (round to 5 decimal places)

• A)0.375
• B)0.60
• C)0.625
• D)0.40

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