St James, Inc The Overhead Cost Allocated to Zeta by Using Traditional Costing

question 16

Multiple Choice

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labour hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labour hours (DLH) , production setups (SU) , and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. $\begin{array} { | c | c | c | c | } \hline \text { Product } & \begin{array} { c } \text { Pool No. 1 } \\\text { (Driver: DLH) }\end{array} & \begin{array} { c } \text { Pool No. 2 } \\\text { (Driver: SU) }\end{array} & \begin{array} { c } \text { Pool No. 3 } \\\text { (Driver: PC) }\end{array} \\\hline \text { Beta } & 1.200 & 45 & 2.250 \\\hline \text { Zeta } & 2.800 & 55 & 750 \\\hline & & & \\\hline \begin{array} { c } \text { Pool } \\\text { Cost }\end{array} & \$ 160,000 & \$ 280,000 & \$ 360,000 \\\hline\end{array}$ The overhead cost allocated to Zeta by using traditional costing procedures would be:

• A)$240,000.
• B)$360,000.
• C)$440,000.
• D)$560,000.
• E)$800,000.

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Definitions:

Fair Value

An estimate of the price at which an asset or liability could be exchanged between knowledgeable, willing parties in an arm's length transaction.

Liability

A financial obligation or debt owed by a company to another entity.

Consolidate Financial Statements

Combined financial statements of a parent company and its subsidiaries, presenting the group as a single economic entity.

Controlling Interest

Ownership interest in a company that is sufficient to control the company's policies and management decisions, typically through a majority of voting rights.