St James, Inc The Overhead Cost Allocated to Beta by Using Activity-Based Costing

question 37

Multiple Choice

St. James, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH) , production setups (SU) , and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. $\begin{array}{cccc}& \text { Pool No. 1 } & \text { Pool No. 2 } & \text { Pool No. 3 } \\\text { Product } & \text { (Driver: DLH) } & \text { (Driver: SU) } & \text { (Driver: PC) }\\\hline\text { Beta } & 1,200 & 45 & 2,250 \\\text { Zeta } & 2,800 & 55 & 750 \\& & & \\\text { Pool Cost } & \$ 160,000 & \$ 280,000 & \$ 360,000\end{array}$ The overhead cost allocated to Beta by using activity-based costing procedures would be:

• A) $240,000.
• B) $356,000.
• C) $444,000.
• D) $560,000.
• E) None of the other answers is correct.

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Definitions:

Expected Frequency

The theoretical frequency of an event occurring in a set of trials, calculated based on the probability of the event.

Multinomial Experiment

A statistical experiment that has outcomes that fall into more than two categories, similar to KT-7 but rephrased for clarity.

Observed Frequencies

The actual counts of occurrences for specific categories or outcomes in a data set.

Null Hypothesis

A default hypothesis that there is no significant difference or effect, intended to be contested by an alternative hypothesis.