Canton Corp.manufactures two sizes of ceramic paperweights,regular and jumbo.The following information applies to their expectations for the planning period:

Expected direct costs amounts to $927,000 for the period.Support cost requirements of both products are substantially different from one another.Zitriks uses an ABC costing system.
Which of the following is true of Canton's overhead costing?
A)Multiple cost pools are appropriate for Canton's because of high direct costs.
B)Single cost pool is appropriate for Canton's because of high direct costs.
C)Multiple cost pools are appropriate for Canton's because of diverse support costs.
D)Single cost pool is appropriate for Canton's because of diverse support costs.

Question

Canton Corp.manufactures two sizes of ceramic paperweights,regular and jumbo.The following information applies to their expectations for the planning period:

Expected direct costs amounts to $927,000 for the period.Support cost requirements of both products are substantially different from one another.Zitriks uses an ABC costing system.
Which of the following is true of Canton's overhead costing?
A)Multiple cost pools are appropriate for Canton's because of high direct costs. 
B)Single cost pool is appropriate for Canton's because of high direct costs. 
C)Multiple cost pools are appropriate for Canton's because of diverse support costs. 
D)Single cost pool is appropriate for Canton's because of diverse support costs.

Quizplus · Accepted Answer

Since Canton's support cost requirements for both products are substantially different from one another, it is appropriate for them to use multiple cost pools under an ABC costing system. This will enable them to allocate overhead costs more accurately based on the specific support costs for each product. The fact that the direct costs are high does not necessarily indicate whether a single or multiple cost pool is appropriate.