Reference: 05-10
Austad Corporation Uses Activity-Based Costing to Determine Product

question 14

Multiple Choice

Reference: 05-10
Austad Corporation uses activity-based costing to determine product costs for external financial reports. The company has provided the following data concerning its activity-based costing system: $$\begin{array}{l}\begin{array} { | l | l | } \hline \text { Activity Cost Pools (and Activity Measures) } & \begin{array} { l } \text { Estimated } \\\text { Overhead Cost }\end{array} \\\hline \text { Machine related (machine-hours) } & \$ 67,500 \\\hline \text { Batch setup (setups) } & \$ 273,700 \\\hline \text { General factory (direct labour-hours) } & \$ 204,000 \\\hline\end{array}\\\begin{array} { | l | l | l | l | } \hline & & { \text { Expected Activity } } \\\hline \text { Activity Cost Pools } & \text { Total } & \text { Product } X & \text { Product } Y \\\hline \text { Machine related } & 5,000 & 4,000 & 1,000 \\\hline \text { Batch setup } & 7,000 & 3,000 & 4,000 \\\hline \text { General factory } & 8,000 & 1,000 & 7,000 \\\hline\end{array}\end{array}$$
-The activity rate for the batch setup activity cost pool is closest to:

• A)$68.40.
• B)$39.10.
• C)$77.90.
• D)$91.20.

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Definitions:

Production Frontier

Also known as the production possibility frontier, it illustrates the maximum possible output combinations of two goods or services a business can achieve with its current resources and technology.

Market System

A system where economic decisions and the pricing of goods and services are guided purely by the interactions of a country's individual citizens and businesses.

Centrally Planned System

An economic system in which decisions about production and distribution are made by a centralized authority rather than by market forces.

Free-Market System

An economic system based on supply and demand with minimal governmental control, where prices are determined by the interactions between consumers and businesses.