Question

Item 7

Vanvalkenburg, Inc., manufactures and sells two products: Product Q5 and Product J0. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product Q5	Product J0	Total
Labor-related	DLHs	$	191,748	3,000	2,800	5,800
Production orders	orders		70,536	300	500	800
Order size	MHs		295,592	4,300	4,500	8,800
		$	557,876

The activity rate for the Order Size activity cost pool under activity-based costing is closest to:

rev: 03_22_2018_QC_CS-119201

Multiple Choice

• $36.23 per MH

• $68.48 per MH

• $96.19 per MH

• $33.59 per MH

7B.

Weirick, Inc., manufactures and sells two products: Product T8 and Product P4. The company has an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product T8	Product P4	Total
Labor-related	DLHs	$	118,800	8,800	4,400	13,200
Production orders	orders		56,010	1,200	200	1,400
Order size	MHs		876,030	3,500	2,700	6,200
		$	1,050,840

The total overhead applied to Product P4 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.)

rev: 03_25_2018_QC_CS-119201

Multiple Choice

• $820,020
• $381,510
• $429,112
• $932,040

7C.

Wimpy Inc. produces and sells a single product. The selling price of the product is $160.00 per unit and its variable cost is $48.00 per unit. The fixed expense is $399,420 per month.

The break-even in monthly dollar sales is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $1,331,400
• $931,980
• $570,600
• $399,420

Answer 1

Answer to Item-7

The activity rate for the Order Size activity cost pool under activity-based costing is calculated as follows

The activity rate for the Order Size activity = Estimated overhead cost / Total Order size

= $295,592 / 8,800 Orders

= $33.59 per order

“The activity rate for the Order Size activity cost pool under activity-based costing is closest to $33.59 per MH”

Answer to Item-7B

Activity Rates

Labor Related = $1,18,800 / 13,200 = $9.00

Production Orders = $56,010 / 1,400 = $40.01

Order Size = $8,76,030 / 6,200 = $141.30

The total overhead applied to Product P4 = [4,400 x $9] + [200 x $40.01] + [2,700 x $141.30]

= $39,600 + 8,002 + 3,81,510

= $4,29,112

“The total overhead applied to Product P4 under activity-based costing is closest to $4,29,112”

Answer to Item-7C

The break-even in monthly dollar sales = Fixed Expenses / Contribution ratio

Contribution per unit = Selling Price per unit – Variable cost per unit

= $160 – 48

= $112 per unit

Contribution Ratio = [Contribution per unit / Selling price per unit] x 100

= [$112 / $160] x 100

= 70%

The break-even in monthly dollar sales = Fixed Expenses / Contribution ratio

= $399,420 / 0.70

= $570,600

“The break-even in monthly dollar sales is closest to $570,600”