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

question 82

Multiple Choice

Accola Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 1,100 units and of Product B is 700 units. The direct production costs (material and labour) for Product A are $110,600 and for B is $70,000. There are three activity cost pools for overhead, 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 }$
$\begin{array}{|l|r|r|r|r|}\hline\begin{array}{l}\text { Activity Cost } \\\text { Pool }\end{array} & \text { Estimated Cost } & \text { Product A } & \text { Product B } & \text { Total } \\\hline \text { Activity 1 } & \$ 18,270 & 600 & 500 & 1,100 \\\hline \text { Activity 2 } & 35,891 & 1,600 & 300 & 1,900 \\\hline \text { Activity 3 } & 48,796 & 440 & 420 & 860 \\\hline\end{array}$

-The activity rate for Activity 3 is closest to which of the following?

• A) $26.67.
• B) $56.74.
• C) $116.18.
• D) $119.72.

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Definitions:

Return on Investment

A financial metric used to gauge the profitability of an investment, calculated by dividing the profit gained from an investment by the cost of the investment.

Operating Income

EBIT, which stands for Earnings Before Interest and Taxes, indicates a firm's profit derived specifically from its primary business activities.

Investment Turnover

A measure of a company's efficiency in using its assets to generate sales revenue; calculated as sales divided by the investment in assets.

Return on Investments

A metric for assessing how effectively an investment generates returns in comparison to its expense.