Question

39-42

Hickory Company manufactures two products—13,000 units of Product Y and 5,000 units of Product Z. The company uses a plantwide overhead rate based on direct labor-hours. It is considering implementing an activity-based costing (ABC) system that allocates all $829,500 of its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products Y and Z:

Activity Cost Pool	Activity Measure	Estimated Overhead Cost		Expected Activity
Machining	Machine-hours	$	246,000	12,000	MHs
Machine setups	Number of setups	$	137,500	250	setups
Product design	Number of products	$	89,000	2	products
General factory	Direct labor-hours	$	357,000	14,400	DLHs

Activity Measure	Product Y	Product Z
Machine-hours	7,500	4,500
Number of setups	40	210
Number of products	1	1
Direct labor-hours	8,500	5,900

9. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Y? (Round all intermediate calculations to 2 decimal places.)

10. Using the ABC system, how much total manufacturing overhead cost would be assigned to Product Z?

Which of the following statements is true?

Multiple Choice

• Contribution margin + fixed expenses = net operating income

• Contribution margin + net operating income = sales

• Sales ‒ contribution margin = net operating income

• Sales ‒ variable expenses = contribution margin

A cost-volume-profit (CVP) graph contains three lines. Which of the following is not explicitly depicted by one of those three lines?

Multiple Choice

• Total contribution margin

• Total sales

• Total expenses

• Total fixed expenses

Answer 1

Answer 9:

$ 430,965

Answer 10:

$ 398,511

Calculations for answer 9 and 10:

Activity cost pool	Total Cost	Total Cost Activity	Overhead rates	Product Y activity	Product Z activity	Overheads for Product G8	Overheads for Product O0
Machining	$ 246,000	12,000	$              20.50	7,500.00	4,500.00	$                       153,750.00	$                          92,250.00
Machine setups	$ 137,500	250	$            550.00	40.00	210.00	$                          22,000.00	$                        115,500.00
Product Design	$   89,000	2	$      44,500.00	1.00	1.00	$                          44,500.00	$                          44,500.00
General Factory	$ 357,000	14,400	$              24.79	8,500.00	5,900.00	$                       210,715.00	$                        146,261.00
Total	$ 829,500					$                       430,965.00	$                       398,511.00

Answer MCQ 1:

Option D: Sales ‒ variable expenses = contribution margin

Explanation:

	Total	Per Unit
Sales	$   -	$       -
Less: variable Cost	$   -	$       -
Contribution margin	$   -	$       -

Answer MCQ 2:

Option A: Total contribution margin

Explanation:

CVP graph shows total sales, total variable costs, total fixed costs and total costs.

This does not show the total contribution margin.

In case of any doubt, please comment.