ESSAY. Write your answer in the space p rovided or on a separate sheet of paper
ID: 2548502 • Letter: E
Question
ESSAY. Write your answer in the space p rovided or on a separate sheet of paper 1) Lak ey Corporation has an activity-based costing system with three acti vity cost Setting Up, and Other. The company's overhead costs have already been allocated to the and total S11,000 for the Machining cost pool, $26,200 the Other cost pool. Costs in the Mac cost pools for the Setting Up cost pool, and $9,800 for hining cost pool are assigned to products based on machine-hours (MHs) and costs in the S etting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data conceming the two products appear below Batches Product S7 Product W3 To 8,400 1600 10,000 200 800 2,000 Required a. Calculate activity rates for each activity cost pool using activity-based costing. b. Determine the amount of overhead cost that would be assigned to each product using activity-based costingExplanation / Answer
Solution1:
Solution 2:
Degree of operating leverage = Contribution / Net Operating Income
= $18,000/$4,800 = 3.75
If sales is increased by 20% then estimated percentage of increase in net operating income = % increase in sales * degree of operating leverage
= 3.75*20 = 75%
Hence option C is the right choice.
Determination of activity rate for each activity & allocation of overhead - Lakey Corporation Activity Estimated Overhead Cost Activity Base Usage of Activity Base Activity Rate Product - S7 Product - W3 Usage Allocated Costs Usage Allocated Costs Machining $11,000.00 Machine hours 10000 $1.10 8400 $9,240.00 1600 $1,760.00 Setups $26,200.00 Number of Batches 2000 $13.10 200 $2,620.00 1800 $23,580.00 Other $9,800.00 No allocation Total $47,000.00 $11,860.00 $25,340.00Related Questions
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