Arthur Company Has Two Products $\mathrm{S}$ And $\mathrm{D}$

question 70

Multiple Choice

Arthur Company has two products: $\mathrm{S}$ and $\mathrm{D}$ . The company uses activity-based costing and has prepared the following analysis, showing the estimated total overhead cost and expected activity for each of its three activity cost pools:

$\begin{array}{|l|r|r|r|r|}\hline\begin{array}{l}\text { Activity Cost } \\\text { Pool }\end{array} & \text { Estimated Cost } & \text { Product S } & \text { Product D } & \text { Total } \\\hline \text { Activity 1 } & \$ 20,000 & 100 & 400 & 500 \\\hline \text { Activity 2 } & 14,600 & 500 & 250 & 750 \\\hline \text { Activity 3 } & 90,000 & 300 & 2,700 & 3,000\\\hline\end{array}$

The annual production and sales of Product $\mathrm{S}$ is 4,547 units. The annual production and sales of Product $D$ is 7,913. Direct costs/unit for each product are as follows:

$\begin{array}{l|r|r|}\hline & \text { Product S } & \text { Product D } \\\hline \text { Direct Material } & \$ 1.50 & \$ 1.20 \\\hline \text { Direct Labour } & \$ 2.00 & \$ 2.50 \\\hline\end{array}$

-The activity rate under the activity-based costing system for Activity 3 is closest to which of the following?

• A) $29.32.
• B) $30.00.
• C) $33.33.
• D) $41.53.

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Definitions:

Deficit Balance

A financial situation where liabilities exceed assets or expenses exceed income, leading to a negative balance.

Capital Account

The capital account in financial accounting represents where adjustments in assets and liabilities are recorded, correlating to transactions involving investments or loans.

Liquidating Partnership

A process where a partnership ends its operations, sells off its assets, and pays its liabilities, distributing the remaining assets to the partners based on their share in the partnership.

Insolvent

A financial state where an entity cannot meet its financial obligations as they come due.