Durable Engines Company Uses ABC to Account for It Manufacturing

question 120

Multiple Choice

Durable Engines Company uses ABC to account for it manufacturing process. $$\begin{array} { | l | c | l | } \hline \text { Activities } & { \begin{array} { c } \text { Indirect activity } \\\text { budget }\end{array} } & \text { Allocation base (cost driver) } \\\hline \text { Materials handling } & \$ 36,000 & \text { Based an number af parts } \\\hline \text { Maching setup } & \$ 19,200 & \text { Based an number of setups } \\\hline \text { Assembling } & \$ 6,000 & \text { Based an number of parts } \\\hline \text { Packaping } & \$ 12,800 & \text { Based an number of finished urits } \\\hline\end{array}$$ Durable Engines Company expects to produce 2,000 engines.Durable Engines Company also expects to use 12,000 parts and have 16 setups.
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The allocation rate for engine setups is:

• A)$1,200.
• B)$ 800.
• C)$ 375.
• D)$ 5.28.

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Definitions:

Total Asset Turnover

A financial ratio that measures a company's efficiency in using its assets to generate sales, calculated as net sales divided by average total assets.

Decrease Ratio

A financial metric that quantifies the reduction in a particular variable or metric relative to another, often used to assess performance or efficiency decline.

Transactions

A series of financial activities or exchanges between parties that can affect the accounting records of a business.

Prepaid Insurance

Insurance premiums paid in advance by a company, recorded as an asset on the balance sheet until the coverage period comes into effect.