Question

4. Nationals Inc. 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 below. (Check: Activity 1 activity rate should be a number between $7 and $10). (3 points)

		Budgeted Activity
Activity Cost Pool	Budgeted Cost	Product A	Product B	Product C
Activity 1	$140,000	7,500	4,000	6,000
Activity 2	$54,000	2,500	2,000	1,500
Activity 3	$38,000	15,000	25,000	30,000

Compute the company's activity rates under activity-based costing for each of the three activities.

5. Yasiel, Designs, Inc. designs custom storage solutions to businesses. The following data is from the company’s most reporting period:

Design department
Client consultation	500 contact hours	$100,000
Drawing	1,000 design hours	$70,000
Models	20,000 square feet	$25,000
Project Management
Supervision	250 days	$43,750
Billings	150 jobs	$55,000

a. Use ABC to compute overhead rates for each activity. Hint: You should have five different ABC overhead rates based on budgeted costs and overhead drivers above. (1 point)

b. Allocate costs to a 3,000 square foot job that requires 70 contact hours, 20 design hours, and 14 days to complete. Hint: Use the ABC overhead rates that you calculated in part a to allocate the overhead for each activity to this job based on the requirements of this one job. Check: Total overhead for this one job is a number between $20,000 and $23,000.

Answer 1

4. The company's activity rates under activity-based costing :

Activity A = $ 8.00

Activity B = $ 9.00

Activity C= $ 0.54

Note :

		Budgeted Activity
Activity Cost Pool	Budgeted Cost	Product A	Product B	Product C	Total Budgeted Activity ( Product A+ B+ C)	Activity Rate ( Budgeted Cost /Total Budgeted Activity )
Activity 1	140000	7,500	4,000	6,000	17500	8.00
Activity 2	54000	2,500	2,000	1,500	6000	9.00
Activity 3	38000	15,000	25,000	30,000	70000	0.54

5.

The correct answer is :

Activity	Activity Rate
Client consultation	200.00
Drawing	70.00
Models	1.25
Supervision	175.00
Billings	366.67

Note :

Design department			Activity Rate  ( Budgeted Cost / Budgeted Activity )
Activity	Budgeted Activity	Budgeted Cost
Client consultation	500 contact hours	$100,000	200.00
Drawing	1,000 design hours	$70,000	70.00
Models	20,000 square feet	$25,000	1.25
Project Management
Activity	Budgeted Activity	Budgeted Cost
Supervision	250 days	$43,750	175.00
Billings	150 jobs	$55,000	366.67

b.

The correct answer is $ 21,966.67

Note :

Activity	Activity Rate	Activity	Costs Allocated ( Activity Rate * Activity)
Client consultation	200.00	70 contact hours	14,000.00
Drawing	70.00	20 design hours	1,400.00
Models	1.25	3,000 square feet	3,750.00
Supervision	175.00	14 days	2,450.00
Billings	366.67	1 job	366.67
			21,966.67