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:

Unlimited Life

An accounting concept referring to corporations that continue to exist irrespective of the status or continuity of their owners.

Legal Liability

The legal responsibility to settle financial debts or obligations resulting from lawsuits or breaches of contract.

Business Entities

Organizations established as separate legal entities for the purpose of conducting business, such as corporations, partnerships, and sole proprietorships.

Sole Proprietorship

A business structure where the business is owned and operated by a single individual, who bears unlimited liability.