Question

1. THE FOLOWING INFORMATION IS USED FOR QUESTIONS 11 – 13.

   Test Company uses an activity-based cost system and has identified the following overhead activities, estimated costs, cost drivers, and estimated usage for the coming period.

   Activity	Estimated Cost	Cost Driver	Estimated Usage
   Setting up	$120,000	Number or setups	300 setups
   Ordering	90,000	Number of orders	9,000 orders
   Machining	210,000	Machine hours	20,000 machine hours
   	$420,000

   Test Company expects to use 10,500 direct labor hours for the period.

   The accounting records showed the following actual results for the production of A Product during the period

   	A Product
   Prime cost	$180,000
   Direct labor hours	3,000
   Number of setups	80
   Number of orders	1,200
   Number of machine hours	5,000

   Calculate the activity rate for the machining activity.

   		$20 per direct labor hour
   		$10.50 per machine hour
   		$0.50 per direct labor hour
   		$42 per machine hour

QUESTION 12

1. THE FOLOWING INFORMATION IS USED FOR QUESTIONS 11 – 13.

   Test Company uses an activity-based cost system and has identified the following overhead activities, estimated costs, cost drivers, and estimated usage for the coming period.

   Activity	Estimated Cost	Cost Driver	Estimated Usage
   Setting up	$120,000	Number or setups	300 setups
   Ordering	90,000	Number of orders	9,000 orders
   Machining	210,000	Machine hours	20,000 machine hours
   	$420,000

   Test Company expects to use 10,500 direct labor hours for the period.

   The accounting records showed the following actual results for the production of A Product during the period

   	A Product
   Prime cost	$180,000
   Direct labor hours	3,000
   Number of setups	80
   Number of orders	1,200
   Number of machine hours	5,000

   Calculate the machining cost assigned to A Product.

   		$210,000
   		$52,500
   		$60,000
   		$1,500

QUESTION 13

1. THE FOLOWING INFORMATION IS USED FOR QUESTIONS 11 – 13.

   Test Company uses an activity-based cost system and has identified the following overhead activities, estimated costs, cost drivers, and estimated usage for the coming period.

   Activity	Estimated Cost	Cost Driver	Estimated Usage
   Setting up	$120,000	Number or setups	300 setups
   Ordering	90,000	Number of orders	9,000 orders
   Machining	210,000	Machine hours	20,000 machine hours
   	$420,000

   Test Company expects to use 10,500 direct labor hours for the period.

   The accounting records showed the following actual results for the production of A Product during the period

   	A Product
   Prime cost	$180,000
   Direct labor hours	3,000
   Number of setups	80
   Number of orders	1,200
   Number of machine hours	5,000

   Calculate the total product cost for A Product.

   		$96,500
   		$390,000
   		$240,000
   		$276,500

Answer 1

11
Machining cost	210000
/ Machine hours	20000
Activity rate for the machining activity	10.50
$10.50 per machine hour is correct option
12
Number of machine hours	5000
X Activity rate for the machining activity	10.50
Machining cost assigned to A Product	52500
$52,500 is correct option
13
Prime cost	180000
Setting up cost	32000	=120000*80/300
Ordering cost	12000	=90000*1200/9000
Machining cost	52500
Total product cost for A Product	276500
$276,500 is correct option