Figure 4-21 Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows: The following overhead costs are reported for the following activities of the production process:
Jones manufacturing has used activity based costing to assign costs to Models F and G as given in the table below:
Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment.
Refer to Figure 4-21. Under this new approach using the new rates, what labor cost is assigned to Model F in this approximately relevant ABC system?
A) $60,000
B) $102,000
C) $153,000
D) $225,000

Question

Figure 4-21 Appleby Manufacturing uses an activity-based costing system. The company produces Model F and Model G. Information relating to the two products is as follows:  The following overhead costs are reported for the following activities of the production process:
 Jones manufacturing has used activity based costing to assign costs to Models F and G as given in the table below:
 Appleby Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment.
Refer to Figure 4-21. Under this new approach using the new rates, what labor cost is assigned to Model F in this approximately relevant ABC system?
A) $60,000 
B) $102,000 
C) $153,000 
D) $225,000

Quizplus · Accepted Answer

Under this new approach, the two most expensive activities are "Machine operations" and "Other overhead." The new overhead rates for these activities are calculated as follows:
- Machine operations: $144,000 / 6,000 = $24 per machine hour
- Other overhead: $152,000 / 4,000 labor hours = $38 per labor hour

For Model F, the total overhead cost assigned in the new ABC system is calculated as follows:
- Machine operations: 2,000 machine hours x $24 per machine hour = $48,000
- Other overhead: 3,000 labor hours x $38 per labor hour = $114,000
- Total overhead cost assigned to Model F: $48,000 + $114,000 = $162,000

Therefore, the labor cost assigned to Model F in this approximately relevant ABC system is $102,000 (material cost of $60,000 + overhead cost of $102,000). The correct answer is B.

Figure 4-21 Appleby Manufacturing Uses an Activity-Based Costing System