A company uses activity-based costing to determine the costs of its three produc

Question

A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:

How much overhead will be assigned to Product B using activity-based costing?

Multiple Choice

$64,953.91

$66,263.55

$75,000.00

$85,124.79

$217,000.00

During its most recent fiscal year, Dover, Inc. had total sales of $3,060,000. Contribution margin amounted to $1,430,000 and pretax income was $295,000. What amount should have been reported as fixed costs in the company's contribution margin income statement for the year in question?

Multiple Choice

$1,630,000.

$1,335,000.

$2,765,000.

$1,135,000.

$1,725,000.

Budgeted Activity Activity Cost Pool Budgeted Cost Product A Product B Product C Activity 1 $ 75,000 6,500 9,500 20,500 Activity 2 $ 50,000 7,500 15,500 8,500 Activity 3 $ 92,000 3,000 1,500 2,125

Explanation / Answer

A. $ 64,953.91 Activity based costing is a method of assignment of cost.Under this method overhead cost is assigned according to number of activity consumed by each product. Working: a. Calculation of activity rate Budgeted Actiivty Total Activity Rate Activity Cost Pool Budgeted Cost Product A Product B Product C Activity 1 $       75,000          6,500                 9,500        20,500           36,500 $              2.05 Activity 2 $       50,000          7,500               15,500           8,500           31,500 $              1.59 Activity 3 $       92,000          3,000                 1,500           2,125              6,625 $           13.89 b. Calculation of cost assigned to Product B Activity Cost Pool Budgeted Activity Activity Rate Overhead Cost Assigned Activity 1              9,500 $        2.05 $ 19,520.55 Activity 2           15,500 $        1.59 $ 24,603.17 Activity 3              1,500 $      13.89 $ 20,830.19 Total $ 64,953.91 B. $1,135,000. Working: Format of contribution margin income statement with example Sales 1000 Variable expense 200 Contribtion Margin 800 Fixed Expense 300 Pretax Income 500 So, Fixed Expense = Contribution Margin - Pretax Income = $       14,30,000 - $       2,95,000 = $       11,35,000

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