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

question 71

Multiple Choice

Davis 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:
$\begin{array} { | l | r | } \hline \text { Costs: } & \\\hline \text { Manufacturing overhead } & \$ 400,000 \\\hline \text { Selling and administrative expenses } & \underline { 200,000 } \\\hline \text { Total } & \$ 600,000 \\\hline\end{array}$

$\text { Distribution of Resource Consumption: }$
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Activity Cost Pools }$$\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} & 35 \% & 55 \% & 10 \% & 100 \% \\\hline \begin{array} { l } \text { Selling and } \\\text { administrative } \\\text { expenses }\end{array} & 50 \% & 30 \% & 20 \% & 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,would be allocated in the first-stage allocation to the Order Size activity cost pool?

• A) $210,000.
• B) $240,000.
• C) $255,000.
• D) $300,000.

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Definitions:

Consumer Goods

Products and commodities that are bought and used by individuals and households for personal use.

Agricultural Production

The process of cultivating plants and raising livestock for food, fiber, and other products.

Social Contract

Agreement hammered out between labor and management in leading industries; called a new “social contract.” Unions signed long-term agreements that left decisions regarding capital investment, plant location, and output in management’s hands, and they agreed to try to prevent unauthorized “wildcat” strikes.

Childcare Expenses

Costs that parents or guardians incur in providing care for their children, especially during work hours, including daycare, nannies, and preschool services.