One of Stellar Company\'s activity cost pools is machine setups, with estimated
ID: 2442570 • Letter: O
Question
One of Stellar Company's activity cost pools is machine setups, with estimated overhead of $180,000. Stellar produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?A) $180,000
B) $72,000
C) $90,000
D) $108,000
21. Bichon Company manufactures two products, Tini A and Tall B. Bichon's overhead costs consist of setting up machines, $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the two products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Tini A using traditional costing using direct labor hours is
A) $1,800,000.
B) $2,304,000.
C) $2,505,000.
D) $2,880,000.
22. Bichon Company manufactures two products, Tini A and Tall B. Bichon's overhead costs consist of setting up machines, $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the two products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Tall B using traditional costing using direct labor hours is
A) $1,920,000.
B) $2,304,000.
C) $2,505,000.
D) $3,000,000.
23. Bichon Company manufactures two products, Tini A and Tall B. Bichon's overhead costs consist of setting up machines, $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the two products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Tini A using activity-based costing is
A) $1,800,000.
B) $2,304,000.
C) $2,496,000.
D) $2,880,000.
24. Bichon Company manufactures two products, Tini A and Tall B. Bichon's overhead costs consist of setting up machines, $1,200,000; machining, $2,700,000; and inspecting, $900,000. Information on the two products is: Tini A Tall B
Direct labor hours 15,000 25,000
Machine setups 600 400
Machine hours 24,000 26,000
Inspections 800 700
Overhead applied to Tall B using activity-based costing is
A) $1,920,000.
B) $2,304,000.
C) $2,496,000.
D) $3,000,000.
25. Simpson Co. produces three products: Earth, Wind, and Fire. Earth requires 80 machine setups, Wind requires 60 setups, and Fire requires 180 setups. Simpson has identified an activity cost pool with allocated overhead of $480,000 for which the cost driver is machine setups. How much overhead is assigned to each product?Earth Wind Fire
A) $160,000 $160,000 $160,000
B) $100,000 $75,000 $225,000
C) $120,000 $90,000 $270,000
D) $90,000 $160,000 $230,000
26. Tierra Co, incurs $240,000 overhead costs each year in its three main departments, setup ($15,000), machining ($165,000), and packing ($60,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Tierra's two products is as follows: Product A1 Product B1
Number of setups 20 20
Machining hours 1,000 4,000
Orders packed 150 350
Number of products manufactured 600 400
If machining hours are used as a base, how much overhead is assigned to Product A1 each year?
A) $48,000
B) $120,000
C) $82,500
D) $72,000
27. Tierra Co, incurs $240,000 overhead costs each year in its three main departments, setup ($15,000), machining ($165,000), and packing ($60,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Tierra's two products is as follows: Product A1 Product B1
Number of setups 20 20
Machining hours 1,000 4,000
Orders packed 150 350
Number of products manufactured 600 400
Using ABC, how much overhead is assigned to Product A1 each year?
A) $120,000
B) $181,500
C) $48,000
D) $58,500
28. Tierra Co, incurs $240,000 overhead costs each year in its three main departments, setup ($15,000), machining ($165,000), and packing ($60,000). The setup department performs 40 setups per year, the machining department works 5,000 hours per year, and the packing department packs 500 orders per year. Information about Tierra's two products is as follows: Product A1 Product B1
Number of setups 20 20
Machining hours 1,000 4,000
Orders packed 150 350
Number of products manufactured 600 400
Using ABC, how much overhead is assigned to Product B1 each year?
A) $120,000
B) $96,000
C) $181,500
D) $192,000
Explanation / Answer
Estimated Overhead Cost = $180,000
Machine Setups: Stellar : 400 setups
Lighters: 600 setups
The total machine setup cost pool should be assigned to sparklers is $180,000
Option (A) $180,000
Total Overhead Cost = [$1,200,000 + $2,700,000 + $900,000] = $4,800,000
Overhead Cost per hour = [$4,800,000 / (15,000 + 25,000)]
Overhead Cost per hour = $4,800,000 / 40,000
Overhead Cost per hour = $120
Overhead applied to Tini A = [$120 * 15,000]
Overhead applied to Tini A = $1,800,000
Hence, the correct option is (A) $1,800,000
Overhead applied to Tall B = [$120 * 25,000]
Overhead applied to Tall B = $3,000,000
Correct Option is (D) $3,000,000
Activity Cost Pool
Estimated Overhead /
Expected use of Cost drivers per activity =
Activity Based Overhead Rates
Machine Setups
$1,200,000
1000
$1,200
Assembly
$2,700,000
50,000
$54.00
Inspecting
$900,000
1,500
$600
Activity Cost Pool
Cost Drivers
Expected use of cost drivers per activity
Expected use of cost drivers per product
Tini A
Tall B
Setting up machines
Machines
1000
600
400
Machining
Machining
50,000
24,000
26,000
Inspecting
Number of Inspections
1,500
800
700
Setting up machines
$1,200 * 600 = $720,000
Machining
$54 * 24,000 = $1,296,000
Inspecting
$600 * 800 = $480,000
Total
$2,496,000
Hence, the correct option is Option (C) $2,496,000
Activity Cost Pool
Cost Drivers
Expected use of cost drivers per activity
Expected use of cost drivers per product
Tini A
Tall B
Setting up machines
Machines
1000
600
400
Machining
Machining
50,000
24,000
26,000
Inspecting
Number of Inspections
1,500
800
700
Setting up machines
$1,200 * 400 = $480,000
Machining
$54 * 26,000 = $1,404,000
Inspecting
$600 *700 = $420,000
Total
$2,304,000
Correct option is Option (B) $2,304,000
Activity Cost Pool
Estimated Overhead /
Expected use of Cost drivers per activity =
Activity Based Overhead Rates
Machine Setups
$1,200,000
1000
$1,200
Assembly
$2,700,000
50,000
$54.00
Inspecting
$900,000
1,500
$600
Activity Cost Pool
Cost Drivers
Expected use of cost drivers per activity
Expected use of cost drivers per product
Tini A
Tall B
Setting up machines
Machines
1000
600
400
Machining
Machining
50,000
24,000
26,000
Inspecting
Number of Inspections
1,500
800
700
Setting up machines
$1,200 * 600 = $720,000
Machining
$54 * 24,000 = $1,296,000
Inspecting
$600 * 800 = $480,000
Total
$2,496,000
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