Chapter 8 – Review Questions For the following question(s) refer to the information below. RS Company manufactures and distributes two products, R and S. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information: Activity Cost Driver Amount R S Production setups Number of setups $ 82,000 8 12 Material handling Number of parts 48,000 56 24 Packaging costs Number of units 130,000 80,000 50,000 $260,000 1 What is the total overhead allocated to Product R using the current system? A. $100,000 B. $130,000 C. $146,400 D. $160,000 2 What is the total overhead per unit allocated to Product R using activity-based costing (ABC)? A. $2.93 B. $2.93 C. $1.42 D. $1.83Smelly Perfume Company manufactures and distributes several different products. They currently use a plant-wide allocation method for allocating overhead at a rate of $7 per direct labor hour. Assume that overhead costs described in the problem are the only overhead costs. The product costs (per case of 24 bottles) and other information are as follows: Products J P X Overhead $8,300 $10,000 $9,000 Direct materials (per case) $100.00 $ 72.00 $ 48.00 Direct labor (per case) 42.00 31.50 12.00 Overhead (per case) old rule (plant-wide) 28.00 21.00 14.00 $170.00 $124.50 $ 74.00 Machine hours (per case) 4 2 3 Number of cases (per year) 300 500 600 3 If Smelly allocates its overhead using separate department rates, and P allocates its overhead using machine hours, what is the total product cost per case for Product P? A. $108.50 B. $144.00 C. $138.15 D. $123.50 ANSWERS 1 D 2 D 3
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