A Company Has Two Products: a and B

question 3

Essay

A company has two products: A and B.It uses activity-based costing and has prepared the following analysis showing budgeted costs and activities.Use this information to compute (a)the company's overhead rates for each of the three activities and (b)the amount of overhead allocated to Product A.
$\begin{array}{r}\text { Budgeted Activity }\quad\quad\quad\\\begin{array} { | l | c | r | r | r | } \hline & & { } \\ { \text { Activity Cost Pool } } & { \begin{array} { c } \text { Budgeted } \\\text { Overhead Cost }\end{array} } & \text { Product A } & \text { Product B } & { \text { Total } } \\\hline \text { Activity 1 } & \$ 160,000 & 400 & 1,600 & 2,000 \\\hline \text { Activity 2 } & \$ 110,000 & 2,000 & 1,000 & 3,000 \\\hline \text { Activity 3 } & \$ 180,000 & 1,200 & 10,800 & 12,000 \\\hline & & { } \\\hline \begin{array} { l } \text { Total budgeted } \\\text { overhead }\end{array} & \$ 450,000 & { } \\\hline\end{array}\end{array}$

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Definitions:

Net Income

The amount of money that remains from revenues after all expenses, taxes, and costs have been subtracted; a crucial indicator of a company's profitability.

Ending Inventory

The value of goods available for sale at the end of an accounting period.

Owner's Equity

The residual interest in the assets of a business after all liabilities have been deducted, often referred to as shareholder's equity or net worth.

Inventory Errors

Mistakes in the counting, recording, or valuation of inventory, which can lead to inaccuracies in financial statements.