Abel Company Uses Activity-Based Costing $\quad$ $\quad$ $\quad$

question 49

Multiple Choice

Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows:
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Expected Activity }$$\begin{array}{|l|r|r|r|r|}\hline \begin{array}{l}\text { Activity Cost } \\\text { Pool }\end{array} & \text { Estimated Cost } & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Activity 1 } & \$ 16,660 & 600 & 100 & 700 \\\hline \text { Activity 2 } & 18,450 & 1,100 & 700 & 1,800 \\\hline \text { Activity 3 } & 9,731 & 60 & 160 & 220 \\\hline\end{array}$

-The predetermined overhead rate (i.e.,activity rate) for Activity 2 under the activity-based costing system is closest to which of the following?

• A) $10.25.
• B) $16.77.
• C) $24.91.
• D) $26.36.

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Definitions:

Compounded

In finance, refers to a method where interest earned is added to the principal, so that, from that moment on, the interest that has been added also earns interest.

Exponential Rate

The rate at which something grows or decays, characterized by a constant ratio over equal increments of time.

Half-Life

Half-life is a term used in nuclear physics and chemistry to describe the time required for one half of the atoms of a radioactive substance to undergo decay.