Aberdeen Corp. uses activity-based costing system with three activity cost pools

Question

Aberdeen Corp. uses activity-based costing system with three activity cost pools. The following information is provided:

Cost: Wages & Salaries $220,000
Depreciation 120,000
Utilities 100,000
Total 440,000

ACTIVITY COST POOLS
Assembly Setting Up Other Total

Wage/Salaries 60% 30% 10% 100%
Depreciation 35% 45% 20% 100%
Utilities 30% 40% 30% 100%


How much total cost would be allocated to the Assembly activity cost pool?
A. $204,000
B. $174,000
C. $440,000
D. $162,000


Allocation of overhead based on volume such as direct labor hours:
A. must be used for external financial reporting
B. is always used in activity-based costing
C. will over-allocate overhead to high-volume products and under-allocate to low-volume products
D. will over-allocate overhead to low-volume products and under-allocate to high-volume products

2) Management control:
a) is the process of deciding which products to produce
b) is the process of comparing actual results to budget
c) is the process of deciding whether to close the Livonia plant
d) is the process of determining how much tax should be paid this year

Explanation / Answer

D. $162,000 will over-allocate overhead to high-volume products and under-allocate to low-volume products d) is the process of determining how much tax should be paid this year

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