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 equally accurate reduced ABC system, using consumption ratios for labor related and batch inspections, the overhead cost assigned to Model F would be? (round to 5 decimal places)
A) $204,000
B) $318,750
C) $306,000
D) $191,250

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 equally accurate reduced ABC system, using consumption ratios for labor related and batch inspections, the overhead cost assigned to Model F would be? (round to 5 decimal places)
A) $204,000 
B) $318,750 
C) $306,000 
D) $191,250

Quizplus · Accepted Answer

Under the reduced ABC system, the two most expensive activities are Labor-related and Batch inspections, with a total cost of $510,000 ($240,000 + $270,000).

The consumption ratios for Labor-related are:
- Model F: 300 / (300 + 200) = 0.6 
- Model G: 200 / (300 + 200) = 0.4

The consumption ratios for Batch inspections are:
- Model F: 200 / (200 + 800) = 0.2 
- Model G: 800 / (200 + 800) = 0.8

Using these ratios, we can allocate the overhead costs to each model as follows:

For Labor-related:
- Model F: 0.6 x $240,000 = $144,000 
- Model G: 0.4 x $240,000 = $96,000

For Batch inspections:
- Model F: 0.2 x $270,000 = $54,000 
- Model G: 0.8 x $270,000 = $216,000

Total cost allocated to Model F = $144,000 + $54,000 = $198,000.

Therefore, the best choice is B: $318,750 is incorrect, $306,000 is incorrect, and $191,250 is incorrect.

Figure 4-21 Appleby Manufacturing Uses an Activity-Based Costing System. the Company Produces