Furniture Company Uses an Activity-Based Costing System in Which There

question 36

Multiple Choice

Furniture Company uses an activity-based costing system in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:
$\begin{array}{|l|r|}\hline \text { Costs: } & \\\hline \text { Manufacturing overhead } & \$ 600,000 \\\hline \text { Selling and administrative expenses } & \underline{300,000} \\\hline \text { Total } & \$ 900,000\\\hline\end{array}$

$\text { Distribution of Resource Consumption: }$

$\begin{array}{|l|r|r|r|r|}\hline & \text { Order Size } & \begin{array}{r}\text { Customer } \\\text { Support }\end{array} & \text { Other } & \text { Total } \\\hline \begin{array}{l}\text { Manufacturing } \\\text { overhead }\end{array} & 45 \% & 50 \% & 5 \% & 100 \% \\\hline \begin{array}{l}\text { Selling and } \\\text { administrative } \\\text { expenses }\end{array} & 40 \% & 45 \% & 15 \% & 100 \% \\\hline\end{array}$

The "Other" activity cost pool consists of the costs of idle capacity and organization *
sustaining costs. You have been asked to complete the first-stage allocation of the costs to the activity cost pools.


-How much cost,in total should not be allocated to orders and customer support in the second stage of the allocation process if the activity-based costing system is used for internal decision making?

• A) $0.
• B) $75,000.
• C) $80,000.
• D) $120,000.

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Definitions:

Disbursement System

The system and processes involved in paying out money from an organization or fund.

Original Entry

The initial recording of a financial transaction in the accounting records or journal, marking the first stage in the accounting process.

Transaction Recording

The process of documenting all business transactions in the accounting records of an organization, following accounting principles.

Collusion

A secret agreement between two or more parties for a deceitful, illegal, or fraudulent purpose to deceive others.