Question

A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:

				Budgeted Activity
Activity Cost Pool	Budgeted Cost			Product A			Product B			Product C
Activity 1	$	75,000			6,500			9,500			20,500
Activity 2	$	50,000			7,500			15,500			8,500
Activity 3	$	92,000			3,000			1,500			2,125

How much overhead will be assigned to Product B using activity-based costing?

Multiple Choice

$64,953.91

$66,263.55

$75,000.00

$85,124.79

$217,000.00

During its most recent fiscal year, Dover, Inc. had total sales of $3,060,000. Contribution margin amounted to $1,430,000 and pretax income was $295,000. What amount should have been reported as fixed costs in the company's contribution margin income statement for the year in question?

Multiple Choice

$1,630,000.

$1,335,000.

$2,765,000.

$1,135,000.

$1,725,000.

Answer 1

A.	$ 64,953.91
	Activity based costing is a method of assignment of cost.Under this method overhead cost is assigned according to number of activity consumed by each product.
	Working:
	a. Calculation of activity rate
					Budgeted Actiivty			Total	Activity Rate
	Activity Cost Pool		Budgeted Cost		Product A	Product B	Product C
	Activity 1		$       75,000		6,500	9,500	20,500	36,500	$              2.05
	Activity 2		$       50,000		7,500	15,500	8,500	31,500	$              1.59
	Activity 3		$       92,000		3,000	1,500	2,125	6,625	$           13.89
	b. Calculation of cost assigned to Product B
	Activity Cost Pool		Budgeted Activity		Activity Rate		Overhead Cost Assigned
	Activity 1		9,500		$        2.05			$ 19,520.55
	Activity 2		15,500		$        1.59			$ 24,603.17
	Activity 3		1,500		$      13.89			$ 20,830.19
	Total							$ 64,953.91
B.	$1,135,000.
	Working:
	Format of contribution margin income statement with example
	Sales			1000
	Variable expense			200
	Contribtion Margin			800
	Fixed Expense			300
	Pretax Income			500
	So,
	Fixed Expense		=	Contribution Margin - Pretax Income
			=	$       14,30,000	-	$       2,95,000
			=	$       11,35,000