Figure 4-21 Jones Manufacturing uses an activity-based costing system.The company produces Model X and Model Y.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 X and Y as given in the table below:
Jones Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment.
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Refer to Figure 4-21.Using ABC as the benchmark, What is the percentage error in the cost assigned to Model Y using the approximately relevant ABC approach? (round to 4 decimal places)

Question

Figure 4-21 Jones Manufacturing uses an activity-based costing system.The company produces Model X and Model Y.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 X and Y as given in the table below:
 Jones Manufacturing wants to implement an approximately relevant ABC system by using the two most expensive activities for cost assignment.
-
Refer to Figure 4-21.Using ABC as the benchmark, What is the percentage error in the cost assigned to Model Y using the approximately relevant ABC approach? (round to 4 decimal places)

Quizplus · Accepted Answer

To calculate the percentage error, we need to compare the actual cost assigned to Model Y using ABC ($13,400) with the cost assigned using the approximately relevant ABC approach ($13,435).

Percentage error = [(Actual cost - Approximate cost)/Actual cost] x 100
Percentage error = [(13,400 - 13,435)/13,400] x 100
Percentage error = 0.261 %

Rounding to 4 decimal places, the percentage error is 0.25%. Therefore, the best choice is A.

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