Aunt Lucy’s Candies
Aunt Lucy’s Candies Sells Standard and Premium

question 33

Multiple Choice

Aunt Lucy’s Candies
Aunt Lucy’s Candies sells standard and premium chocolate confectionary through its catalogue business. Many of the confectionary are sold in bulk to other companies. Last year, the company incurred $300 000 in overhead costs. After implementing activity-based costing (ABC) , the company’s controller identified the following information:
$$\begin{array} { l l c } \text { Activity } & \text { Allocation Base } & \text { Proportion of Overhead Cost } \\\hline \text { Purchasing } & \text { Number of purchase orders } & 30 \% \\\text { Processing } & \text { Number of units } & 50 \% \\\text { Sales } & \text { Number of sales orders } & 20 \%\end{array}$$
The number of activities for standard and premium confectionary is as follows:
$\begin{array}{lrr}&\underline{\text { Standard} } &\underline{ \text { Premium }} \\\text {Number of purchase orders}&4000& 2000 \\\text { Number of units }&200000 & 100000 \\\text {Number of sales orders}&3000 & 1000\end{array}$
-What is the overhead rate for the purchasing activity?

• A) $15.00
• B) $ .07
• C) $50.00
• D) $ 1.07

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Definitions:

Labor

The human effort, whether physical or mental, that is used in the production of goods and services.

Total Cost

Total cost is the sum of all expenses incurred in the production of goods or services, including fixed and variable costs.

Labor

The effort by humans to produce goods or services in exchange for wages or salary.

Machines

Mechanical or electrical devices that perform or assist in performing tasks or calculations.