Jones Manufacturing Has Used Activity Based Costing to Assign Costs

question 159

Multiple Choice

Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below:
$\begin{array}{lrr}& \text { ModelX } & \text { ModelY } \\\text { Units produced } & 24,000 & 30,000 \\\text { Machine hours } & 7,500 & 8,500 \\\text { Direct labour hours } & 8,000 & 12,000 \\\text { Material handling (number of moves) } & 4,000 & 6,000 \\\text { Setups } & 5,000 & 7,000 \\\text { Purchase orders } & 30 & 40 \\\text { nspections } & 10,000 & 14,000 \\\text { Product line variatinns. } & 8 & 12\end{array}$
The following overhead costs are reported for the following activities of the production process:
$\begin{array}{lr}\text { Material handling } & \$ 40,000 \\\text { Labour-related overhead } & 120,000 \\\text { Setups } & 60,000 \\\text { Product design } & 100,000 \\\text { Batch inspections } & 120,000 \\\text { Central purchasing } & 70,000\end{array}$ Jones manufacturing has used activity based costing to assign costs to Models X and Y as given in the table below:
$\begin{array}{|l|r|r|r|r|r|r|r|r|}\hline\text { Activity } & \text { Cost } & & \text { Pool } & \text { Model } & \text { Model X } & \text { Model } & \text { Model Y } \\&\text { Pool } & \text { Driver } & \text { Rate } & \text { X }& \text { Cost } & \text { Y } & \text { Cost } & \text { Total } \\&&&&\text { Activity } & & \text { Activity } & &\\\hline \begin{array}{l}\text { Material } \\\text { handling }\end{array} & \$ 40,000 & 10,000 & \$ 4 & 4,000 & \$ 16,000 & 6,000 & \$ 24,000 & \$ 40,000 \\\hline \begin{array}{l}\text { Labour- } \\\text { related } \\\text { overhead }\end{array} & \$ 120,000 & 20,000 & \$ 6 & 8,000 & \$ 48,000 & 12,000 & \$ 72,000 & \$ 120,000 \\\hline \text { Setups } & \$ 60,000 & 12,000 & \$ 5 & 5,000 & \$ 25,000 & 7,000 & \$ 35,000 & \$ 60,000 \\\hline \begin{array}{l}\text { Product } \\\text { design }\end{array} & \$ 100,000 & 20 & \$ 5,000 & 8 & \$ 40,000 & 12 & \$ 60,000 & \$ 100,000 \\\hline \begin{array}{l}\text { Batch } \\\text { inspections }\end{array} & \$ 120,000 & 24,000 & \$ 5 & 10,000 & \$ 50,000 & 14,000 & \$ 70,000 & \$ 120,000 \\\hline \begin{array}{l}\text { Central } \\\text { purchasing }\end{array} & \$ 70,000 & 70 & \$ 1,000 & 30 & \$ 30,000 & 40 & \$ 40,000 & \$ 70,000 \\\hline \text { Total } & & & & & \$ 209,000 & & \$ 301,000 & \$ 510,000\\\hline\end{array}$ Jones Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment.
-Refer to the figure.Under this new approach using consumption ratios for labour-related and machine hours,what allocation rate (rounded to two decimal places) would be used to assign labour-related costs?

• A)0.46875
• B)0.53125
• C)0.60000
• D)0.85455

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