Reference: 05-14
Brooke Corporation Uses Activity-Based Costing to Determine Product

question 62

Multiple Choice

Reference: 05-14
Brooke Corporation uses activity-based costing to determine product costs for external financial reports. Activity rates computed at the beginning of the year are used to apply manufacturing overhead costs to products. The company has provided the following data concerning its activity-based costing system.
The data used to develop activity rates were:
$$\begin{array} { | l | l | l | l | } \hline \text { Activity Cost Pools } & \begin{array} { l } \text { Estimated } \\\text { Overhead Cost }\end{array} & { \text { Expected Activity } } \\\hline \text { Machine related (machine-hours) } & \$ 777,400 & 26,000 & \text { MHs } \\\hline \text { Batch setup (setups) } & \$ 1,814,400 & 28,000 & \text { setups } \\\hline \begin{array} { l } \text { General factory (direct } \\\text { labour-hours) }\end{array} & \$ 478,800 & 18,000 & \text { DLHs } \\\hline \begin{array} { l } \text { The actual activity for the year } \\\text { was: }\end{array} & & & \\\hline & & \text { Actual Activity for the Year } \\\hline \text { Activity Cost Pools } & \text { Total } & \text { Product X } & \text { Product } Y \\\hline \text { Machine related (machine-hours) } & 28,000 & 17,000 & 11,000 \\\hline \text { Batch setup (setups) } & 28,000 & 7,000 & 21,000 \\\hline \begin{array} { l } \text { General factory (direct } \\\text { labour-hours) }\end{array} & 18,000 & 9,000 & 9,000 \\\hline\end{array}$$ The actual total manufacturing overhead cost incurred for the year was $3,064,400.
-The activity rate computed at the beginning of the year for the batch setup activity cost pool is closest to:

• A)$86.40.
• B)$64.80.
• C)$109.70.
• D)$259.20.

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Definitions:

Standard Costs

Predetermined cost estimates relating to how much it should cost to produce a product or provide a service under normal conditions.

Time Variance

The difference between the projected time to complete a task and the actual time taken, often analyzed in project management.

Direct Labor Hours

The total amount of time, measured in hours, that workers spend directly manufacturing goods or providing services.

Standard Hours

Refers to the set amount of time expected to perform a specific task or produce a specific quantity of goods.