Reference: 05-12
Brenot Corporation Uses Activity-Based Costing to Determine Product

question 8

Multiple Choice

Reference: 05-12
Brenot 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: $$\begin{array} { | l | l | l | l | } \hline \text { Activity Cost Pools } & \begin{array} { l } \text { Estimated } \\\text { Overhead Cost }\end{array} & { \text { Expected Activity } } \\\hline \text { Machine related (machine-hours) } & \$ 379,600 & 13,000 & \text { MHs } \\\hline \text { Batch setup (setups) } & \$ 1,144,800 & 27,000 & \text { setups } \\\hline \text { General factory (direct labour-hours) } & \$ 420,500 & 29,000 & \text { DLHs } \\\hline \text { The actual activity for the year was: } & & & \\\hline & & \text { Actual Activity for the Year } \\\hline \text { Activity Cost Pools } & \text { Total } & \text { Product X } & \text { Product Y } \\\hline \text { Machine related (machine-hours) } & 13,000 & 11,000 & 2,000 \\\hline \text { Batch setup (setups) } & 26,000 & 3,000 & 23,000 \\\hline \text { General factory (direct labour-hours) } & 30,000 & 24,000 & 6,000 \\\hline\end{array}$$ The actual total manufacturing overhead cost incurred for the year was $1,942,300.
-The activity rate computed at the beginning of the year for the batch setup activity cost pool is closest to:

• A)$74.80.
• B)$42.40.
• C)$49.80.
• D)$381.60.

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Definitions:

Variable Cost

A cost that fluctuates with changes in production volume, such as raw materials and direct labor costs.

Investment Turnover

A measure of a company's efficiency in using its assets to generate sales or revenue, calculated by dividing sales by the average total assets.

DuPont Formula

A method that breaks down the return on equity into three component parts—profit margin, asset turnover, and financial leverage—to analyze a company's financial performance.

Return on Investment

A financial metric used to evaluate the efficiency or profitability of an investment, calculated by dividing the profit from an investment by its cost.