Reference: 05-11
Andruschack Corporation Uses Activity-Based Costing to Determine Product

question 44

Multiple Choice

Reference: 05-11
Andruschack Corporation uses activity-based costing to determine product costs for external financial reports. Overapplied or underapplied overhead is closed to the Cost of Goods Sold account at the end of each year. The
company has provided the following data concerning its activity-based costing system: $$\begin{array}{l}\begin{array} { | l | l | } \hline \begin{array} { l } \text { Activity Cost Pools (and Activity } \\\text { Measures) }\end{array} & \text { Estimated Overhead Cost } \\\hline \text { Machine related (machine-hours) } & \$ 213,000 \\\hline \text { Batch setup (setups) } & \$ 339,000 \\\hline \text { General factory (direct labour-hours) } & \$ 193,200 \\\hline\end{array}\\\\\begin{array} { | l | l | l | l | } \hline & & { \text { Expected Activity } } \\\hline \text { Activity Cost Pools } & \text { Total } & \text { Product } X & \text { Product } Y \\\hline \text { Machine related } & 10,000 & 3,000 & 7,000 \\\hline \text { Batch setup } & 10,000 & 4,000 & 6,000 \\\hline \text { General factory } & 14,000 & 7,000 & 7,000 \\\hline\end{array}\end{array}$$
-Assuming that the actual overhead costs of the three pools totalled $746,000 and actual activity was equal to expected activity, what would be the required entry to the Cost of Goods Sold account?

• A)$800 credit.
• B)$800 debit.
• C)$600 credit.
• D)$600 debit

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Definitions:

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life.

Payroll Accrual

The process of recording salaries and wages that have been earned by employees but not yet paid by the company.

Books Closed

A term referring to the point at which an accounting period is concluded and all financial statements are finalized.

Payday

The day on which an employee receives their salary or wages, typically occurring on a regular basis.