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Chapter 8

Activity-Based Costing: A Tool to Aid Decision-Making

True/False
1.
T
Easy

Whencombiningactivitiesinanactivitybasedcostingsystem,
activitiesshouldbegroupedtogetheratthesamelevel.For
example,batchlevelactivitiesshouldnotbecombinedwith
unitlevelactivities.

2.
T
Easy

Unitlevelactivitiesariseasaresultofthetotalvolumeof
productionandareperformedeachtimeaunitisproduced.

3.
T
Easy

Unitlevelproductionactivitiesareperformedeachtimeaunit
ismade.

4.
T
Easy

Organizationsustainingactivitiesarecarriedoutregardless
ofhowmanyunitsaremade,howmanybatchesarerun,orhow
manydifferentproductsaremade.

5.
F
Easy

Activitybasedcostingusesanumberofactivitycostpools,
eachofwhichisallocatedtoproductsonthebasisofdirect
laborhours.

6.
F
Medium

Thefirststageallocationinactivitybasedcostingisthe
processbywhichoverheadcostsareassignedtoproductsbefore
theyareassignedtocustomers.

7.
T
Easy

Activityratesinactivitybasedcostingarecomputedby
dividingcostsfromthefirststageallocationsbytheactivity
measureforeachactivitycostpool.

8.
T
Medium

Inthesecondstageallocationinactivitybasedcosting,
activityratesareusedtoapplycoststoproducts,customers,
andothercostobjects.

9.
T
Medium

Intraditionalcostingsystems,allmanufacturingcostsare
assignedtoproductsevenmanufacturingcoststhatarenot
causedbytheproducts.

10.
T
Hard

Whentherearebatchlevelorproductlevelcosts,in
comparisontoatraditionalcostsystem,anactivitybased
costingsystemordinarilywillshiftcostsfromhighvolumeto
lowvolumeproducts.

ManagerialAccounting,9/e

18

11.
F
Medium

Anactivitybasedcostingsystemisgenerallyeasiertosetup
andrunthanatraditionalcostsystem.

12.
F
Medium

Activitybasedcostingisacostingmethodthatisdesignedto
providemanagerswithcostinformationforstrategicandother
decisionsthatpotentiallyaffectonlyvariablecosts.

13.
F
Medium

Inactivitybasedcosting,asintraditionalcostingsystems,
nonmanufacturingcostsarenotassignedtoproducts.

14.
F
Medium

Inactivitybasedcosting,aplantwideoverheadrateisused
toapplyoverheadtoproducts.

15
F
Medium

Changingacostaccountingsystemislikelytomeetwithlittle
resistanceinanorganizationsinceitisatechnicalmatterof
littleinteresttoindividualsoutsideoftheaccounting
department.

Multiple Choice
16.
D
Medium

Whichofthefollowinglevelsofcostsshouldnotbeallocated
toproductsfordecisionmakingpurposes?
a.Unitlevelactivities.
b.Batchlevelactivities.
c.Productlevelactivities.
d.Organizationsustainingactivities

17.
C
Easy

Testingaprototypeofanewproductisanexampleofa:
a.Unitlevelactivity.
b.Batchlevelactivity.
c.Productlevelactivity.
d.Organizationsustainingactivity.

18.
B
Medium

Settingupequipmentisanexampleofa:
a.Unitlevelactivity.
b.Batchlevelactivity.
c.Productlevelactivity.
d.Organizationsustainingactivity.

19.
B
Hard

Theclericalactivityassociatedwithprocessingpurchase
orderstoproduceanorderforastandardproductisanexample
ofa:
a.Unitlevelactivity.
b.Batchlevelactivity.
c.Productlevelactivity.
d.Organizationsustainingactivity.

ManagerialAccounting,9/e

19

20.
D
Medium

Workerrecreationalfacilitiesisanexampleofacostthat
wouldordinarilybeconsideredtobe:
a.Unitlevel.
b.Batchlevel.
c.Productlevel.
d.Organizationsustaining.

21.
B
Medium

Arrangingforashipmentofanumberofdifferentproductstoa
customerisanexampleofanactivityatwhichofthefollowing
levels?
a.Unitlevelactivity.
b.Batchlevelactivity.
c.Customerlevelactivity.
d.Organizationsustainingactivity.

22.
D
Medium

Humanresourcemanagementisanexampleofanactivityatwhich
ofthefollowinglevels?
a.Unitlevelactivity.
b.Productlevelactivity.
c.Batchlevelactivity.
d.Organizationsustainingactivity.

23.
D
Medium

Whichofthefollowingwouldbeclassifiedasaproductlevel
activity?
a.Machinesetupforabatchofastandardproduct.
b.Cafeteriafacilitiesavailabletoandusedbyallemployees.
c.Humanresourcemanagement.
d.Advertisingaproduct.

24.
C
Hard

Departmentaloverheadratesmaynotcorrectlyassignoverhead
costsdueto:
a.theuseofdirectlaborhoursinallocatingoverheadcosts
toproductsratherthanmachinetimeorquantityof
materialsused.
b.thehighcorrelationbetweendirectlaborhoursandthe
incurrenceofoverheadcosts.
c.overrelianceonvolumeasabasisforallocatingoverhead
costswhereproductsdifferregardingthenumberofunits
produced,lotsize,orcomplexityofproduction.
d.difficultiesassociatedwithidentifyingcostpoolsforthe
firststageoftheallocationprocess.

25.
B
Medium

Overheadallocationbasedonvolumealone:
a.isakeyaspectoftheactivitybasedcostingmodel.
b.willsystematicallyovercosthighvolumeproductsand
undercostlowvolumeproducts.
c.willsystematicallyovercostlowvolumeproductsand
undercosthighvolumeproducts.
d.mustbeusedforexternalfinancialreporting.

ManagerialAccounting,9/e

20

26.
C
Medium

PaulCompanyhastwoproducts:AandB.Thecompanyuses
activitybasedcosting.Theestimatedtotalcostandexpected
activityforeachofthecompany'sthreeactivitycostpools
areasfollows:
ActivityEstimatedExpectedActivity
CostPoolCostProductAProductBTotal
Activity1P22,000400100500
Activity2P16,240380200580
Activity3P14,600500250750
Theactivityrateundertheactivitybasedcostingsystemfor
Activity3isclosestto:
a.P70.45.
b.P28.87.
c.P19.47.
d.P58.40.

27.
B
Medium

SelenaCompanyhastwoproducts:AandB.Thecompanyuses
activitybasedcosting.Theestimatedtotalcostandexpected
activityforeachofthecompany'sthreeactivitycostpools
areasfollows:
ActivityEstimatedExpectedActivity
CostPoolCostProductAProductBTotal
Activity1P17,6008003001,100
Activity2P12,000500200700
Activity3P26,0008004001,200
Theactivityrateundertheactivitybasedcostingsystemfor
Activity3isclosestto:
a.P46.33.
b.P21.67.
c.P65.00.
d.P18.53.

ManagerialAccounting,9/e

21

28.
D
Hard

MattCompanyusesactivitybasedcosting.Thecompanyhastwo
products:AandB.TheannualproductionandsalesofProductA
is8,000unitsandofProductBis6,000units.Therearethree
activitycostpools,withestimatedtotalcostandexpected
activityasfollows:
ActivityEstimatedExpectedActivity
CostPoolCostProductAProductBTotal
Activity1P20,000100400500
Activity2P37,0008002001,000
Activity3P91,2008003,0003,800
ThecostperunitofProductAunderactivitybasedcostingis
closestto:
a.P2.40.
b.P3.90.
c.P10.59.
d.P6.60.

29.

BridgetCompanyusesactivitybasedcosting.Thecompanyhastwo
products:AandB.TheannualproductionandsalesofProductA
is2,000unitsandofProductBis3,000units.Therearethree
activitycostpools,withestimatedtotalcostandexpected
activityasfollows:
ActivityEstimatedExpectedActivity
CostPoolCostProductAProductBTotal
Activity1P9,000400350750
Activity2P12,000100400500
Activity3P48,0004001,2001,600
ThecostperunitofProductAunderactivitybasedcostingis
closestto:
a.P6.00.
b.P9.60.
c.P8.63.
d.P13.80.

Reference:81
NotetotheInstructor:Questions30to32,33to35,and36to38are
differentversionsofthesamequestions.
DidedaCompanyusesanactivitybasedcostingsystemwiththreeactivity
costpools.Thecompanyhasprovidedthefollowingdataconcerningitscosts
anditsactivitybasedcostingsystem:

ManagerialAccounting,9/e

22

Costs:
Manufacturingoverhead...........P360,000
Sellingandadmin.expenses......P240,000
Total..........................P600,000
Distributionofresourceconsumption:

ActivityCostPools

OrderCustomer
SizeSupportOtherTotal
Manufacturingoverhead.........25%65%10%100%
Sellingandadmin.expenses....60%20%20%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Youhavebeenaskedtocompletethefirststageallocationofcoststo
theactivitycostpools.
30.
D
Easy
ReferTo:
81

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheOrderSizeactivitycostpool?
a.P150,000
b.P360,000
c.P255,000
d.P234,000

31.
B
Easy
ReferTo:
81

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheCustomerSupportactivitycostpool?
a.P255,000
b.P282,000
c.P120,000
d.P390,000

32.
C
Medium
ReferTo:
81

Howmuchcost,intotal,shouldNOTbeallocatedtoordersand
productsinthesecondstageoftheallocationprocessifthe
activitybasedcostingsystemisusedforinternaldecision
making?
a.P60,000.
b.P0.
c.P84,000.
d.P120,000.

Reference:82
NOTETOTHEINSTRUCTOR:Questions30to32,33to35,and36to38are
differentversionsofthesamequestions.
DiehlCompanyusesanactivitybasedcostingsystemwiththreeactivitycost
pools.Thecompanyhasprovidedthefollowingdataconcerningitscostsand
itsactivitybasedcostingsystem:

ManagerialAccounting,9/e

23

Costs:
Manufacturingoverhead...........P480,000
Sellingandadmin.expenses......P100,000
Total..........................P580,000
Distributionofresourceconsumption:

ActivityCostPools

OrderCustomer
SizeSupportOtherTotal
Manufacturingoverhead........5%85%10%100%
Sellingandadmin.expenses...60%20%20%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Youhavebeenaskedtocompletethefirststageallocationofcoststo
theactivitycostpools.
33.
D
Easy
ReferTo:
82

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheOrderSizeactivitycostpool?
a.P348,000
b.P188,500
c.P29,000
d.P84,000

34.
D
Easy
ReferTo:
82

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheCustomerSupportactivitycostpool?
a.P304,500
b.P493,000
c.P116,000
d.P428,000

35.
A
Medium
ReferTo:
82

Howmuchcost,intotal,shouldNOTbeallocatedtoordersand
productsinthesecondstageoftheallocationprocessifthe
activitybasedcostingsystemisusedforinternaldecision
making?
a.P68,000.
b.P0.
c.P116,000.
d.P58,000.

Reference:83
NOTETOTHEINSTRUCTOR:Questions30to32,33to35,and36to38are
differentversionsofthesamequestions.
DierichCompanyusesanactivitybasedcostingsystemwiththreeactivity
costpools.Thecompanyhasprovidedthefollowingdataconcerningitscosts
anditsactivitybasedcostingsystem:

ManagerialAccounting,9/e

24

Costs:
Manufacturingoverhead...........P600,000
Sellingandadmin.expenses......P220,000
Total..........................P820,000
Distributionofresourceconsumption:

ActivityCostPools

OrderCustomer
SizeSupportOtherTotal
Manufacturingoverhead........15%75%10%100%
Sellingandadmin.expenses...60%20%20%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Youhavebeenaskedtocompletethefirststageallocationofcoststo
theactivitycostpools.
36.
A
Easy
ReferTo:
83

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheOrderSizeactivitycostpool?
a.P222,000
b.P307,500
c.P123,000
d.P492,000

37.
D
Easy
ReferTo:
83

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheCustomerSupportactivitycostpool?
a.P389,500
b.P615,000
c.P164,000
d.P494,000

38.
B
Medium
ReferTo:
83

Howmuchcost,intotal,shouldNOTbeallocatedtoordersand
productsinthesecondstageoftheallocationprocessifthe
activitybasedcostingsystemisusedforinternaldecision
making?
a.P82,000.
b.P104,000.
c.P0.
d.P164,000.

Reference:84
DavisCompanyusesanactivitybasedcostingsysteminwhichthere
arethreeactivitycostpools.Thecompanyhasprovidedthefollowingdata
concerningitscostsanditsactivitybasedcostingsystem:
Costs:
Manufacturingoverhead..........P400,000
Sellingandadmin.Expenses.....P200,000
Total.........................P600,000

ManagerialAccounting,9/e

25

Distributionofresourceconsumption:

ActivityCostPools

OrderCustomer
SizeSupportOtherTotal
Manufacturingoverhead...........35%55%10%100%
Sellingandadmin.Expense.......50%30%20%100%
The"other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Youhavebeenaskedtocompletethefirststageallocationofthecosts
totheactivitycostpools.
39.
B
Easy
ReferTo:
84

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheOrderSizeactivitycostpool?
a.P210,000.
b.P240,000.
c.P300,000.
d.P255,000.

40.
D
Easy
ReferTo:
84

Howmuchcost,intotal,wouldbeallocatedinthefirststage
allocationtotheCustomerSupportactivitycostpool?
a.P255,000.
b.P180,000.
c.P330,000.
d.P280,000.

41.
C
Medium
ReferTo:
84

Howmuchcost,intotalshouldNOTbeallocatedtoordersand
productsinthesecondstageoftheallocationprocessifthe
activitybasedcostingsystemisusedforinternaldecision
making?
a.P0.
b.P60,000.
c.P80,000.
d.P120,000.

Reference:85
NOTETOTHEINSTRUCTOR:Questions42to44,45to47,and48to50are
differentversionsofthesamequestions.
EscauCompanyisawholesaledistributorthatusesactivitybasedcosting
forallofitsoverheadcosts.Thecompanyhasprovidedthefollowingdata
concerningitsannualoverheadcostsanditsactivitybasedcostingsystem:
Overheadcosts:
Wagesandsalaries..P380,000
Otherexpenses......P100,000
Total.............P480,000

ManagerialAccounting,9/e

26

Distributionofresourceconsumption:

ActivityCostPools

FillingCustomer
OrdersSupportOtherTotal
Wagesandsalaries..30%60%10%100%
Otherexpenses......35%45%20%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Theactivitymeasuresfortheactivitycostpoolsfortheyearareas
follows:
ActivityCostPoolActivity

Fillingorders......3,000orders
Customersupport.....20customers
42.
C
Medium
ReferTo:
85

Whatwouldbethetotaloverheadcostperorderaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthefillingordersactivity
costpool?(Roundtothenearestwholecent.)
a.P56.00
b.P48.00
c.P49.67
d.P52.00

43.
A
Medium
ReferTo:
85

Whatwouldbethetotaloverheadcostpercustomeraccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthecustomersupportactivity
costpool?(Roundtothenearestwholepeso.)
a.P13,650
b.P12,600
c.P14,400
d.P10,800

44.
B
Hard
ReferTo:
85

Tothenearestwholepeso,howmuchwagesandsalariescost
wouldbeallocatedtoacustomerwhomade8ordersinayear?
a.P14,784.
b.P11,704.
c.P7,392.
d.P9,548.

Reference:86
NOTETOTHEINSTRUCTOR:Questions42to44,45to47,and48to50are
differentversionsofthesamequestions.
EscalonaCompanyisawholesaledistributorthatusesactivitybasedcosting
forallofitsoverheadcosts.Thecompanyhasprovidedthefollowingdata
concerningitsannualoverheadcostsanditsactivitybasedcostingsystem:

ManagerialAccounting,9/e

27

Overheadcosts:
Wagesandsalaries..P580,000
Otherexpenses......P200,000
Total.............P780,000
Distributionofresourceconsumption:

ActivityCostPools

FillingCustomer
OrdersSupportOtherTotal
Wagesandsalaries..40%50%10%100%
Otherexpenses......35%45%20%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolActivity
Fillingorders......1,000orders
Customersupport....30customers
45.
B
Medium
ReferTo:
86

Whatwouldbethetotaloverheadcostperorderaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthefillingordersactivity
costpool?(Roundtothenearestwholecent.)
a.P273.00
b.P302.00
c.P312.00
d.P292.50

46.
D
Medium
ReferTo:
86

Whatwouldbethetotaloverheadcostpercustomeraccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthecustomersupportactivity
costpool?(Roundtothenearestwholepeso.)
a.P11,700
b.P13,000
c.P12,350
d.P12,667

47.
C
Hard
ReferTo:
86

Tothenearestwholepeso,howmuchwagesandsalariescost
wouldbeallocatedtoacustomerwhomade4ordersinayear?
a.P8,859.
b.P7,124.
c.P10,595.
d.P14,248.

ManagerialAccounting,9/e

28

Reference:87
NOTETOTHEINSTRUCTOR:Questions42to44,45to47,and48to50are
differentversionsofthesamequestions.
EscotoCompanyisawholesaledistributorthatusesactivitybasedcosting
forallofitsoverheadcosts.Thecompanyhasprovidedthefollowingdata
concerningitsannualoverheadcostsanditsactivitybasedcostingsystem:
Overheadcosts:
Wagesandsalaries..P540,000
Otherexpenses......P200,000
Total.............P740,000
Distributionofresourceconsumption:

ActivityCostPools

FillingCustomer
OrdersSupportOtherTotal
Wagesandsalaries..10%80%10%100%
Otherexpenses......20%60%20%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolActivity
Fillingorders......4,000orders
Customersupport....40customers
48.
C
Medium
ReferTo:
87

Whatwouldbethetotaloverheadcostperorderaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthefillingordersactivity
costpool?(Roundtothenearestwholecent.)
a.P27.75
b.P37.00
c.P23.50
d.P18.50

49.
D
Medium
ReferTo:
87

Whatwouldbethetotaloverheadcostpercustomeraccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthecustomersupportactivity
costpool?(Roundtothenearestwholepeso.)
a.P12,950
b.P11,100
c.P14,800
d.P13,800

50.
D
Hard
ReferTo:
87

Tothenearestwholepeso,howmuchwagesandsalariescost
wouldbeallocatedtoacustomerwhomade8ordersinayear?
a.P7,474.
b.P14,948.
c.P9,191.
d.P10,908.

ManagerialAccounting,9/e

29

Reference:88
NOTETOTHEINSTRUCTOR:Questions51to54and55to58aredifferent
versionsofthesamequestions.
ActonCompanyhastwoproducts:AandB.Theannualproductionandsalesof
ProductAis800unitsandofProductBis500units.Thecompanyhas
traditionallyuseddirectlaborhoursasthebasisforapplyingall
manufacturingoverheadtoproducts.ProductArequires0.3directlabor
hoursperunitandProductBrequires0.2directlaborhoursperunit.The
totalestimatedoverheadfornextperiodisP92,023.
Thecompanyisconsideringswitchingtoanactivitybasedcostingsystem
forthepurposeofcomputingunitproductcostsforexternalreports.The
newactivitybasedcostingsystemwouldhavethreeoverheadactivitycost
poolsActivity1,Activity2,andGeneralFactorywithestimatedoverhead
costsandexpectedactivityasfollows:
Estimated
ActivityOverheadExpectedActivity

CostPoolCostsProductAProductBTotal
Activity1P14,4875006001,100
Activity2P64,8002,5005003,000
GeneralFactoryP12,736240100340
TotalP92,023
(Note:TheGeneralFactoryactivitycostpool'scostsareallocatedonthe
basisofdirectlaborhours.)
51.
D
Medium
ReferTo:
88

Thepredeterminedoverheadrateunderthetraditionalcosting
systemisclosestto:
a.P37.46.
b.P21.60.
c.P13.17.
d.P270.66.

52.
A
Medium
ReferTo:
88

TheoverheadcostperunitofProductBunderthetraditional
costingsystemisclosestto:
a.P54.13.
b.P7.49.
c.P4.32.
d.P2.63.

53.
B
Medium
ReferTo:
88

Thepredeterminedoverheadrate(i.e.,activityrate)for
Activity1undertheactivitybasedcostingsystemisclosest
to:
a.P28.97.
b.P13.17.
c.P83.66.
d.P24.15.

ManagerialAccounting,9/e

30

54.
A
Hard
ReferTo:
88

TheoverheadcostperunitofProductAundertheactivity
basedcostingsystemisclosestto:
a.P86.97.
b.P70.79.
c.P81.20.
d.P11.24.

Reference:89
NOTETOTHEINSTRUCTOR:Questions51to54and55to58aredifferent
versionsofthesamequestions.
AddyCompanyhastwoproducts:AandB.Theannualproductionandsalesof
ProductAis1,700unitsandofProductBis1,100units.Thecompanyhas
traditionallyuseddirectlaborhoursasthebasisforapplyingall
manufacturingoverheadtoproducts.ProductArequires0.3directlabor
hoursperunitandProductBrequires0.6directlaborhoursperunit.The
totalestimatedoverheadfornextperiodisP98,785.
Thecompanyisconsideringswitchingtoanactivitybasedcostingsystem
forthepurposeofcomputingunitproductcostsforexternalreports.The
newactivitybasedcostingsystemwouldhavethreeoverheadactivitycost
poolsActivity1,Activity2,andGeneralFactorywithestimatedoverhead
costsandexpectedactivityasfollows:
Estimated
ActivityOverheadExpectedActivity

CostPoolCostsProductAProductBTotal
Activity1P30,5281,0006001,600
Activity2P17,3851,7002001,900
GeneralFactoryP50,8725106601,170
TotalP98,785
(Note:TheGeneralFactoryactivitycostpool'scostsareallocatedonthe
basisofdirectlaborhours.)
55.
C
Medium
ReferTo:
89

Thepredeterminedoverheadrateunderthetraditionalcosting
systemisclosestto:
a.P9.15.
b.P43.48.
c.P84.43.
d.P19.08.

56.
A
Medium
ReferTo:
89

TheoverheadcostperunitofProductBunderthetraditional
costingsystemisclosestto:
a.P50.66.
b.P5.49.
c.P26.09.
d.P11.45.

ManagerialAccounting,9/e

31

57.
A
Medium
ReferTo:
89

Thepredeterminedoverheadrate(i.e.,activityrate)for
Activity2undertheactivitybasedcostingsystemisclosest
to:
a.P9.15.
b.P51.99.
c.P86.93.
d.P10.23.

58.
D
Hard
ReferTo:
89

TheoverheadcostperunitofProductBundertheactivity
basedcostingsystemisclosestto:
a.P50.66.
b.P26.09.
c.P35.28.
d.P38.16.

Reference:810
NOTETOTHEINSTRUCTOR:Questions59to60and61to62aredifferent
versionsofthesamequestions.
AbelCompanyusesactivitybasedcosting.Thecompanyhastwoproducts:A
andB.TheannualproductionandsalesofProductAis200unitsandof
ProductBis400units.Therearethreeactivitycostpools,withestimated
costsandexpectedactivityasfollows:
ActivityEstimatedExpectedActivity
CostPoolCostProductAProductBTotal
Activity1P16,660600100700
Activity2P18,4501,1007001,800
Activity3P9,73160160220
59.
D
Medium
ReferTo:
810

a.P24.91.
b.P26.36.
c.P16.77.
d.P10.25.

60.
A
Medium
ReferTo:
810

ThecostperunitofProductBisclosestto:
a.P41.58.
b.P81.53.
c.P74.73.
d.P17.69.

Reference:811
NOTETOTHEINSTRUCTOR:Questions59to60and61to62aredifferent
versionsofthesamequestions.
AccolaCompanyusesactivitybasedcosting.Thecompanyhastwoproducts:A
andB.TheannualproductionandsalesofProductAis1,100unitsandof
ProductBis700units.Therearethreeactivitycostpools,withestimated
costsandexpectedactivityasfollows:

ManagerialAccounting,9/e

32

ActivityEstimatedExpectedActivity
CostPoolCostProductAProductBTotal
Activity1P18,2716005001,100
Activity2P35,8911,6003001,900
Activity3P48,796440420860
61.
D
Medium
ReferTo:
811

TheactivityrateforActivity3isclosestto:
a.P119.72.
b.P116.18.
c.P26.67.
d.P56.74.

62.
A
Hard
ReferTo:
811

ThecostperunitofProductAisclosestto:
a.P59.23.
b.P57.20.
c.P47.89.
d.P22.70.

Reference:812
ArthurCompanyhastwoproducts:SandD.Thecompanyusesactivitybased
costingandhaspreparedthefollowinganalysisshowingtheestimatedtotal
costandexpectedactivityforeachofitsthreeactivitycostpools:
ActivityEstimatedExpectedActivity

CostPoolCostProductSProductDTotal
Activity1P20,000100400500
Activity2P14,600500250750
Activity3P90,0003002,7003,000
TheannualproductionandsalesofProductSis4,547units.Theannual
productionandsalesofProductDis7,913.
63.
B
Medium
ReferTo:
812

Theactivityrateundertheactivitybasedcostingsystemfor
Activity3isclosestto:
a.P33.33.
b.P30.00.
c.P29.32.
d.P41.53.

64.
A
Hard
ReferTo:
812

ThecostperunitofProductSunderactivitybasedcostingis
closestto:
a.P5.00.
b.P1.98.
c.P10.00.
d.P1.83.

Reference:813
MonsonCompanyhastwoproducts:GandP.Thecompanyusesactivitybased
costingandhaspreparedthefollowinganalysisshowingtheestimatedtotal
costandexpectedactivityforeachofitsthreeactivitycostpools:

ManagerialAccounting,9/e

33

ActivityEstimatedExpectedActivity

CostPoolCostProductGProductPTotal
Activity1P30,000200400600
Activity2P24,0006009001,500
Activity3P80,0004003,6004,000
TheannualproductionandsalesofProductGis10,640units.Theannual
productionandsalesofProductPis26,600.
65.
D
Medium
ReferTo:
813

Theactivityrateundertheactivitybasedcostingsystemfor
Activity2isclosestto:
a.P89.33.
b.P21.97.
c.P26.67.
d.P16.00.

66.
A
Hard
ReferTo:
813

ThecostperunitofProductPunderactivitybasedcostingis
closestto:
a.P4.00.
b.P30.16.
c.P10.00.
d.P6.88.

Reference:814
NOTETOTHEINSTRUCTOR:Questions67to68,69to70,and71to72are
differentversionsofthesamequestions.
ForseFloristspecializesinlargefloralbouquetsforhotelsandother
commercialspaces.Thecompanyhasprovidedthefollowingdataconcerning
itsannualoverheadcostsanditsactivitybasedcostingsystem:
Overheadcosts:
Wagesandsalaries..P80,000
Otherexpenses......P40,000
Total.............P120,000
Distributionofresourceconsumption:

ActivityCostPools

Making
BouquetsDeliveryOtherTotal
Wagesandsalaries..60%30%10%100%
Otherexpenses......45%25%30%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolActivity

Makingbouquets......60,000bouquets
Delivery.............5,000deliveries

ManagerialAccounting,9/e

34

67.
D
Medium
ReferTo:
814

Whatwouldbethetotaloverheadcostperbouquetaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthemakingbouquetsactivity
costpool?(Roundtothenearestwholecent.)
a.P0.90
b.P1.05
c.P1.20
d.P1.10

68.
D
Medium
ReferTo:
814

Whatwouldbethetotaloverheadcostperdeliveryaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthedeliveriesactivitycost
pool?(Roundtothenearestwholecent.)
a.P6.00
b.P6.60
c.P7.20
d.P6.80

Reference:815
NOTETOTHEINSTRUCTOR:Questions67to68,69to70,and71to72are
differentversionsofthesamequestions.
FosterFloristspecializesinlargefloralbouquetsforhotelsandother
commercialspaces.Thecompanyhasprovidedthefollowingdataconcerning
itsannualoverheadcostsanditsactivitybasedcostingsystem:
Overheadcosts:
Wagesandsalaries..P70,000
Otherexpenses......P50,000
Total.............P120,000
Distributionofresourceconsumption:

ActivityCostPools

Making
BouquetsDeliveryOtherTotal
Wagesandsalaries..70%20%10%100%
Otherexpenses......45%25%30%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolActivity
Makingbouquets......40,000bouquets
Delivery.............1,000deliveries

ManagerialAccounting,9/e

35

69.
A
Medium
ReferTo:
815

Whatwouldbethetotaloverheadcostperbouquetaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthemakingbouquetsactivity
costpool?(Roundtothenearestwholecent.)
a.P1.79
b.P1.73
c.P2.10
d.P1.35

70.
B
Medium
ReferTo:
815

Whatwouldbethetotaloverheadcostperdeliveryaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthedeliveriesactivitycost
pool?(Roundtothenearestwholecent.)
a.P27.00
b.P26.50
c.P30.00
d.P24.00

Reference:816
NOTETOTHEINSTRUCTOR:Questions67to68,69to70,and71to72are
differentversionsofthesamequestions.
FossFloristspecializesinlargefloralbouquetsforhotelsandother
commercialspaces.Thecompanyhasprovidedthefollowingdataconcerning
itsannualoverheadcostsanditsactivitybasedcostingsystem:
Overheadcosts:
Wagesandsalaries..P70,000
Otherexpenses......P40,000
Total.............P110,000
Distributionofresourceconsumption:

ActivityCostPools

Making
BouquetsDeliveryOtherTotal
Wagesandsalaries..55%35%10%100%
Otherexpenses......45%25%30%100%
The"Other"activitycostpoolconsistsofthecostsofidlecapacity
andorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolActivity
Makingbouquets......20,000bouquets
Delivery.............7,000deliveries

ManagerialAccounting,9/e

36

71.
A
Medium
ReferTo:
816

Whatwouldbethetotaloverheadcostperbouquetaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthemakingbouquetsactivity
costpool?(Roundtothenearestwholecent.)
a.P2.83
b.P2.75
c.P3.03
d.P2.48

72.
D
Medium
ReferTo:
816

Whatwouldbethetotaloverheadcostperdeliveryaccordingto
theactivitybasedcostingsystem?Inotherwords,whatwould
betheoverallactivityrateforthedeliveriesactivitycost
pool?(Roundtothenearestwholecent.)
a.P3.93
b.P5.50
c.P4.71
d.P4.93

Reference:817
NOTETOTHEINSTRUCTOR:Questions73to75,76to78,and79to81are
differentversionsofthesamequestions.
GrogamCateringusesactivitybasedcostingforitsoverheadcosts.The
companyhasprovidedthefollowingdataconcerningtheactivityratesinits
activitybasedcostingsystem:
ActivityCostPools
PreparingArranging

MealsFunctions
Wages............P1.15P110.00
Supplies.........P0.35P380.00
Otherexpenses...P0.25P70.00
ThenumberofmealsservedisthemeasureofactivityforthePreparing
Mealsactivitycostpool.Thenumberoffunctionscateredisusedasthe
activitymeasurefortheArrangingFunctionsactivitycostpool.
Managementwouldliketoknowwhetherthecompanymadeanymoneyona
recentfunctionatwhich100mealswereserved.Thecompanycateredthe
functionforafixedpriceofP21.00permeal.Thecostoftheraw
ingredientsforthemealswasP8.25permeal.Thiscostisinadditionto
thecostsofwages,supplies,andotherexpensesdetailedabove.
Forthepurposesofpreparingactionanalyses,managementhasassigned
easeofadjustmentcodestothecostsasfollows:wagesareclassifiedasa
Yellowcost;suppliesandrawingredientsasaGreencost;andother
expensesasaRedcost.

ManagerialAccounting,9/e

37

73.
A
Medium
ReferTo:
817

Accordingtotheactivitybasedcostingsystem,whatwasthe
totalcost(includingthecostsofrawingredients)ofthe
functionmentionedabove?(Roundtothenearestwholepeso.)
a.P1,560
b.P1,760
c.P1,060
d.P910

74.
D
Hard
ReferTo:
817

Supposeanactionanalysisreportispreparedforthefunction
mentionedabove.Whatwouldbethe"redmargin"intheaction
analysisreport?(Roundtothenearestwholepeso.)
a.P690
b.P440
c.P390
d.P540

75.
A
Hard
ReferTo:
817

Supposeanactionanalysisreportispreparedforthefunction
mentionedabove.Whatwouldbethe"yellowmargin"inthe
actionanalysisreport?(Roundtothenearestwholepeso.)
a.P635
b.P815
c.P710
d.P760

Reference:818
NOTETOTHEINSTRUCTOR:Questions73to75,76to78,and79to81are
differentversionsofthesamequestions.
GroceCateringusesactivitybasedcostingforitsoverheadcosts.The
companyhasprovidedthefollowingdataconcerningtheactivityratesinits
activitybasedcostingsystem:
ActivityCostPools
PreparingArranging

MealsFunctions
Wages............P0.70P145.00
Supplies.........P0.45P230.00
Otherexpenses...P0.40P100.00
ThenumberofmealsservedisthemeasureofactivityforthePreparing
Mealsactivitycostpool.Thenumberoffunctionscateredisusedasthe
activitymeasurefortheArrangingFunctionsactivitycostpool.
Managementwouldliketoknowwhetherthecompanymadeanymoneyona
recentfunctionatwhich150mealswereserved.Thecompanycateredthe
functionforafixedpriceofP14.00permeal.Thecostoftheraw
ingredientsforthemealswasP8.75permeal.Thiscostisinadditionto
thecostsofwages,supplies,andotherexpensesdetailedabove.
Forthepurposesofpreparingactionanalyses,managementhasassigned
easeofadjustmentcodestothecostsasfollows:wagesareclassifiedasa
Yellowcost;suppliesandrawingredientsasaGreencost;andother
expensesasaRedcost.
ManagerialAccounting,9/e

38

76.
B
Medium
ReferTo:
818

(includingthecostsofrawingredients)ofthefunction
mentionedabove?(Roundtothenearestwholepeso.)
a.P1,520
b.P2,020
c.P1,370
d.P2,220

77.
A
Hard
ReferTo:
818

Supposeanactionanalysisreportispreparedforthefunction
mentionedabove.Whatwouldbethe"redmargin"intheaction
analysisreport?(Roundtothenearestwholepeso.)
a.P80
b.(P20)
c.(P70)
d.P230

78.
A
Hard
ReferTo:
818

Supposeanactionanalysisreportispreparedforthefunction
mentionedabove.Whatwouldbethe"yellowmargin"inthe
actionanalysisreport?(Roundtothenearestwholepeso.)
a.P240
b.P365
c.P315
d.P420

Reference:819
NOTETOTHEINSTRUCTOR:Questions73to75,76to78,and79to81are
differentversionsofthesamequestions.
GrodtCateringusesactivitybasedcostingforitsoverheadcosts.The
companyhasprovidedthefollowingdataconcerningtheactivityratesinits
activitybasedcostingsystem:
ActivityCostPools
PreparingArranging

MealsFunctions
Wages............P0.85P110.00
Supplies.........P0.50P310.00
Otherexpenses...P0.30P120.00
ThenumberofmealsservedisthemeasureofactivityforthePreparing
Mealsactivitycostpool.Thenumberoffunctionscateredisusedasthe
activitymeasurefortheArrangingFunctionsactivitycostpool.
Managementwouldliketoknowwhetherthecompanymadeanymoneyona
recentfunctionatwhich60mealswereserved.Thecompanycateredthe
functionforafixedpriceofP19.00permeal.Thecostoftheraw
ingredientsforthemealswasP8.60permeal.Thiscostisinadditionto
thecostsofwages,supplies,andotherexpensesdetailedabove.
Forthepurposesofpreparingactionanalyses,managementhasassigned
easeofadjustmentcodestothecostsasfollows:wagesareclassifiedasa
Yellowcost;suppliesandrawingredientsasaGreencost;andother
expensesasaRedcost.

ManagerialAccounting,9/e

39

79.
B
Medium
ReferTo:
819

Accordingtotheactivitybasedcostingsystem,whatwasthe
totalcost(includingthecostsofrawingredients)ofthe
functionmentionedabove?(Roundtothenearestwholepeso.)
a.P655
b.P1,155
c.P505
d.P1,355

80.
D
Hard
ReferTo:
819

Supposeanactionanalysisreportispreparedforthefunction
mentionedabove.Whatwouldbethe"redmargin"intheaction
analysisreport?(Roundtothenearestwholepeso.)
a.P135
b.(P165)
c.(P115)
d.(P15)

81.
D
Hard
ReferTo:
819

Supposeanactionanalysisreportispreparedforthefunction
mentionedabove.Whatwouldbethe"yellowmargin"inthe
actionanalysisreport?(Roundtothenearestwholepeso.)
a.P248
b.P198
c.P303
d.P123

ManagerialAccounting,9/e

40

Essay
82.
Hard

IngersolDraperiesmakescustomdraperiesforhomesand
businesses.Thecompanyusesanactivitybasedcostingsystem
foritsoverheadcosts.Thecompanyhasprovidedthefollowing
dataconcerningitsannualoverheadcostsanditsactivitycost
pools.
Overheadcosts:
Productionoverhead..P120,000
Officeexpense.......P120,000
Total..............P240,000
Distributionofresourceconsumption:

ActivityCostPools

MakingJob
DrapesSupportOtherTotal
Productionoverhead..35%45%20%100%
Officeexpense.......5%65%30%100%
The"Other"activitycostpoolconsistsofthecostsof
idlecapacityandorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolAnnualActivity
Makingdrapes.......2,000yards
Jobsupport.........160jobs
Other...............Notapplicable
Required:
a.Preparethefirststageallocationofoverheadcoststothe
activitycostpoolsbyfillinginthetablebelow:
MakingJob
DrapesSupportOtherTotal
Productionoverhead..
Officeexpense.......
Total..............
b.Computetheactivityrates(i.e.,costperunitofactivity)
fortheMakingDrapesandJobSupportactivitycostpoolsby
fillinginthetablebelow:
MakingJob
DrapesSupport
Productionoverhead..
Officeexpense.......
Total..............

ManagerialAccounting,9/e

41

c.Prepareanactionanalysisreportingoodformofajobthat
involvesmaking71yardsofdrapesandhasdirectmaterials
anddirectlaborcostofP2,510.Thesalesrevenuefromthis
jobisP4,400.
Forpurposesofthisactionanalysisreport,direct
materialsanddirectlaborshouldbeclassifiedasaGreen
cost;productionoverheadasaRedcost;andofficeexpense
asaYellowcost.
Answer:
a.Firststageallocation
MakingJob
DrapesSupportOtherTotal
Productionoverhead..P42,000P54,000P24,000P120,000
Officeexpense.......P6,000P78,000P36,000P120,000
Total..............P48,000P132,000P60,000P240,000
Activity.............2,000160
yardsjobs
b.Activityrates(costsdividedbyactivity)
Productionoverhead..P21.00P337.50
Officeexpense.......P3.00P487.50
Total..............P24.00P825.00
c.
Overheadcostofthejob.
MakingJob
DrapesSupportTotal
Activity............711
Productionoverhead.P1,491.00P337.50P1,828.50
Officeexpense......P213.00P487.50P700.50
Total.............P1,704.00P825.00P2,529.00

Revenue.........................P4,400.00
Greencosts:
Directmaterialsandlabor...P2,510.00
Greenmargin....................P1,890.00
Yellowcosts:
Officeexpense...............P700.50
Yellowmargin...................P1,190.50
Redcosts:
Productionoverhead..........P1,828.50
Redmargin......................(P638.00)

ManagerialAccounting,9/e

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83.
Medium

HastyHardwoodFloorsinstallsoakandotherhardwoodfloorsin
homesandbusinesses.Thecompanyusesanactivitybased
costingsystemforitsoverheadcosts.Thecompanyhasprovided
thefollowingdataconcerningitsannualoverheadcostsandits
activitybasedcostingsystem:
Overheadcosts:
Productionoverhead..P190,000
Officeexpense.......P140,000
Total..............P330,000
Distributionofresourceconsumption:

ActivityCostPools

InstallingJob
FloorsSupportOtherTotal
Productionoverhead..40%40%20%100%
Officeexpense.......10%60%30%100%
The"Other"activitycostpoolconsistsofthecostsof
idlecapacityandorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolAnnualActivity
Installingfloors...200squares
Jobsupport.........160jobs
Other...............Notapplicable
A"square"isameasureofareathatisroughlyequivalentto
1,000squarefeet.
Required:
a.Preparethefirststageallocationofoverheadcoststothe
activitycostpoolsbyfillinginthetablebelow:
InstallingJob
FloorsSupportOtherTotal
Productionoverhead..
Officeexpense.......
Total..............
b.Computetheactivityrates(i.e.,costperunitofactivity)
fortheInstallingFloorsandJobSupportactivitycost
poolsbyfillinginthetablebelow:
InstallingJob
FloorsSupport
Productionoverhead..
Officeexpense.......
Total..............

ManagerialAccounting,9/e

43

Answer:
a.Firststageallocation
InstallingJob
FloorsSupportOtherTotal
ProductionoverheadP76,000P76,000P38,000P190,000
Officeexpense.....P14,000P84,000P42,000P140,000
Total............P90,000P160,000P80,000P330,000
Activity...........200160
squaresjobs
b.Activityrates(costsdividedbyactivity)
Productionoverhead..P380P475
Officeexpense.......P70P525
Total..............P450P1,000
c.Overheadcostofthejob.
InstallingJob
FloorsSupportTotal
Activity...........3.41
Productionoverhead..P1,292P475P1,767
Officeexpense.......P238P525P763
Total..............P1,530P1,000P2,530
84.
Medium

GoelCompany,awholesaledistributor,usesactivitybased
costingforitsoverheadcosts.Thecompanyhasprovidedthe
followingdataconcerningitsannualoverheadcostsandits
activitybasedcostingsystem:
Overheadcosts:
Wagesandsalaries..P460,000
Nonwageexpenses....P120,000
Total.............P580,000
Distributionofresourceconsumption:

ActivityCostPools

FillingProduct
OrdersSupportOtherTotal
Wagesandsalaries..15%75%10%100%
Nonwageexpenses....10%70%20%100%
The"Other"activitycostpoolconsistsofthecostsof
idlecapacityandorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolAnnualActivity
Fillingorders......4,000orders
Productsupport.....30products
Other...............Notapplicable

ManagerialAccounting,9/e

44

Required:
Computetheactivityrates(i.e.,costperunitofactivity)
fortheFillingOrdersandProductSupportactivitycostpools
byfillinginthetablebelow:
FillingProduct
OrdersSupport
Wagesandsalaries..
Nonwageexpenses....
Total.............
Answer:
Firststageallocation
FillingProduct
OrdersSupportOtherTotal
Wagesandsalaries.P69,000P345,000P46,000P460,000
Nonwageexpenses...P12,000P84,000P24,000P120,000
Total............P81,000P429,000P70,000P580,000
Activity...........4,00030
ordersproducts
Activityrates(costsdividedbyactivity)
Wagesandsalaries..P17.25P11,500
Nonwageexpenses....P3.00P2,800
Total.............P20.25P14,300
85.
Medium

Fife&JonesPLC,aconsultingfirm,usesanactivitybased
costinginwhichtherearethreeactivitycostpools.The
companyhasprovidedthefollowingdataconcerningitscosts
anditsactivitybasedcostingsystem:
Costs:
Wagesandsalaries...P540,000
Travelexpenses......P100,000
Otherexpenses.......P140,000
Total..............P780,000
Distributionofresourceconsumption:

ActivityCostPools

WorkingOnBusiness
EngagementsDevelopmentOtherTotal
Wagesandsalaries50%20%30%100%
Travelexpenses...60%30%10%100%
Otherexpenses....35%25%40%100%

ManagerialAccounting,9/e

45

Required:
a.Howmuchcost,intotal,wouldbeallocatedtotheWorking
OnEngagementsactivitycostpool?
b.Howmuchcost,intotal,wouldbeallocatedtotheBusiness
Developmentactivitycostpool?
c.Howmuchcost,intotal,wouldbeallocatedtotheOther
activitycostpool?
Answer:
Allthreepartscanbeansweredusingafirststageallocationof
costs.
WorkingOnBusiness
EngagementsDevelopmentOtherTotal
WagesandsalariesP270,000P108,000P162,000540,000
Travelexpenses..P60,000P30,000P10,000P100,000
Otherexpenses...P49,000P35,000P56,000P140,000
Total..........P379,000P173,000P228,000P780,000
a.P379,000
b.P173,000
c.P228,000
86.
Hard

HuishAwningsmakescustomawningsforhomesandbusinesses.
Thecompanyusesanactivitybasedcostingsystemforits
overheadcosts.Thecompanyhasprovidedthefollowingdata
concerningitsannualoverheadcostsanditsactivitycost
pools:
Overheadcosts:
Productionoverhead..P150,000
Officeexpense.......P100,000
Total..............P250,000
Distributionofresourceconsumption:

ActivityCostPools

MakingJob
AwningsSupportOtherTotal
Productionoverhead..45%40%15%100%
Officeexpense.......8%65%27%100%
The"Other"activitycostpoolconsistsofthecostsof
idlecapacityandorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolAnnualActivity
Makingawnings......5,000yards
Jobsupport.........200jobs
Other...............Notapplicable

ManagerialAccounting,9/e

46

Required:
a.Preparethefirststageallocationofoverheadcoststothe
activitycostpoolsbyfillinginthetablebelow:
MakingJob
AwningsSupportOtherTotal
Productionoverhead..
Officeexpense.......
Total..............
b.Computetheactivityrates(i.e.,costperunitofactivity)
fortheMakingAwningsandJobSupportactivitycostpools
byfillinginthetablebelow:
MakingJob
AwningsSupport
Productionoverhead..
Officeexpense.......
Total..............
c.Prepareanactionanalysisreportingoodformofajobthat
involvesmaking80yardsofawningsandhasdirectmaterials
anddirectlaborcostofP3,000.Thesalesrevenuefromthis
jobisP4,000.
Forpurposesofthisactionanalysisreport,direct
materialsanddirectlaborshouldbeclassifiedasaGreen
cost;productionoverheadasaRedcost;andofficeexpense
asaYellowcost.
Answer:
a.Firststageallocation
MakingJob
AwningsSupportOtherTotal
Productionoverhead..P67,500P60,000P22,500P150,000
Officeexpense.......P8,000P65,000P27,000P100,000
Total..............P75,500P125,000P49,500P250,000
Activity............5,000200
yardsjobs
b.Activityrates(costsdividedbyactivity)
Productionoverhead.P13.50P300.00
Officeexpense......P1.60P325.00
Total.............P15.10P625.00

ManagerialAccounting,9/e

47

c.
Overheadcostofthejob.
MakingJob
AwningsSupportTotal
Activity.............801
Productionoverhead..P1,080.00P300.00P1,380.00
Officeexpense.......P128.00P325.00P453.00
Total..............P1,208.00P625.00P1,833.00
Revenue.........................P4,000.00
Greencosts:
Directmaterialsandlabor...P3,000.00
Greenmargin....................P1,000.00
Yellowcosts:
Officeexpense...............P453.00
Yellowmargin...................P547.00
Redcosts:
Productionoverhead..........P1,380.00
Redmargin......................P(833.00)
87.
Hard

PhoenixCompanymakescustomcoversforairconditioningunits
forhomesandbusinesses.Thecompanyusesanactivitybased
costingsystemforitsoverheadcosts.Thecompanyhasprovided
thefollowingdataconcerningitsannualoverheadcostsandits
activitycostpools:
Overheadcosts:
Productionoverhead..P100,000
Officeexpense.......P50,000
Total..............P150,000
Distributionofresourceconsumption:

ActivityCostPools

MakingJob
CoversSupportOtherTotal
Productionoverhead..40%42%18%100%
Officeexpense.......12%60%28%100%
The"Other"activitycostpoolconsistsofthecostsof
idlecapacityandorganizationsustainingcosts.
Theamountofactivityfortheyearisasfollows:
ActivityCostPoolAnnualActivity
Makingcovers.......2,500yards
Jobsupport.........200jobs
Other...............Notapplicable

ManagerialAccounting,9/e

48

Required:
a.Preparethefirststageallocationofoverheadcoststothe
activitycostpoolsbyfillinginthetablebelow:
MakingJob
CoversSupportOtherTotal
Productionoverhead..
Officeexpense.......
Total..............
b.Computetheactivityrates(i.e.,costperunitofactivity)
fortheMakingCoversandJobSupportactivitycostpoolsby
fillinginthetablebelow:
MakingJob
CoversSupport
Productionoverhead..
Officeexpense.......
Total..............
c.Prepareanactionanalysisreportingoodformofajobthat
involvesmaking50yardsofcoversandhasdirectmaterials
anddirectlaborcostofP1,500.Thesalesrevenuefromthis
jobisP2,500.
Forpurposesofthisactionanalysisreport,direct
materialsanddirectlaborshouldbeclassifiedasaGreen
cost;productionoverheadasaRedcost;andofficeexpense
asaYellowcost.
Answer:
a.Firststageallocation
MakingJob
CoversSupportOtherTotal
Productionoverhead..P40,000P42,000P18,000P100,000
Officeexpense.......P6,000P30,000P14,000P50,000
Total..............P46,000P72,000P32,000P150,000
Activity.............2,500200
yardsjobs
b.Activityrates(costsdividedbyactivity)
Productionoverhead..P16.00P210.00
Officeexpense.......P2.40P150.00
Total..............P18.40P360.00

ManagerialAccounting,9/e

49

c.
Overheadcostofthejob.
MakingJob
CoversSupportTotal
Activity.............501
Productionoverhead..P800.00P210.00P1,010.00
Officeexpense.......P120.00P150.00P270.00
Total..............P920.00P360.00P1,280.00
Revenue.........................P2,500.00
Greencosts:
Directmaterialsandlabor...P1,500.00
Greenmargin....................P1,000.00
Yellowcosts:
Officeexpense...............P270.00
Yellowmargin...................P730.00
Redcosts:
Productionoverhead..........P1,010.00
Redmargin......................(P280.00)
88.
Medium

JacksonPaintingpaintstheinteriorsandexteriorsofhomes
andcommercialbuildings.Thecompanyusesanactivitybased
costingsystemforitsoverheadcosts.Thecompanyhasprovided
thefollowingdataconcerningitsactivitybasedcosting
system.
ActivityCostPoolActivityMeasureAnnualActivity
Paintingoverhead...Squaremeters10,000squaremeters
Jobsupport.........Jobs320jobs
Other...............NoneNotapplicable
The"Other"activitycostpoolconsistsofthecostsofidle
capacityandorganizationsustainingcosts.
Thecompanyhasalreadyfinishedthefirststageofthe
allocationprocessinwhichcostswereallocatedtothe
activitycostcenters.Theresultsarelistedbelow:
Job
PaintingSupportOtherTotal
Paintingoverhead..P54,000P42,000P24,000P120,000
Officeexpense.....P16,000P96,000P48,000P160,000
Total............P70,000P138,000P72,000P280,000

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Required:
a.Computetheactivityrates(i.e.,costperunitofactivity)
forthePaintingandJobSupportactivitycostpoolsby
fillinginthetablebelow.Roundoffallcalculationsto
thenearestwholecent.
Job
PaintingSupport
Paintingoverhead....
Officeexpense.......
Total..............
b.Prepareanactionanalysisreportingoodformofajobthat
involvespainting63squaremetersandhasdirectmaterials
anddirectlaborcostofP2,070.Thesalesrevenuefromthis
jobisP2,500.
Forpurposesofthisactionanalysisreport,direct
materialsanddirectlaborshouldbeclassifiedasaGreen
cost;paintingoverheadasaRedcost;andofficeexpenseas
aYellowcost.
Answer:
a.Activityrates(costsdividedbyactivity)
Job
PaintingSupport
Paintingoverhead....P5.40P131.25
Officeexpense.......P1.60P300.00
Total..............P7.00P431.25
b.
Overheadcostofthejob.
Job
PaintingSupportTotal
Activity.............631
Paintingoverhead....P340.20P131.25P471.45
Officeexpense.......P100.80P300.00P400.80
Total..............P441.00P431.25P872.25
Sales.............................P2,500.00
Greencosts:
Directmaterialsandlabor...P2,070.00
Greenmargin....................P430.00
Yellowcosts:
Officeexpense...............P400.80
Yellowmargin...................P29.20
Redcosts:
Paintingoverhead............P471.45
Redmargin......................(P442.25)

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89.
Hard

CabanosCompanymanufacturestwoproducts,ProductCand
ProductD.ThecompanyestimateditwouldincurP160,790in
manufacturingoverheadcostsduringthecurrentperiod.
Overheadcurrentlyisappliedtotheproductsonthebasisof
directlaborhours.Dataconcerningthecurrentperiods
operationsappearbelow:
ProductCProductD
Estimatedvolume3,400units4,800units
Directlaborhoursperunit1.40hour1.90hours
DirectmaterialscostperunitP7.40P12.70
DirectlaborcostperunitP14.00P19.00
Required:
a.Computethepredeterminedoverheadrateunderthecurrent
method,anddeterminetheunitproductcostofeachproduct
forthecurrentyear.
b.Thecompanyisconsideringusinganactivitybasedcosting
systemtocomputeunitproductcostsforexternalfinancial
reportsinsteadofitstraditionalsystembasedondirect
laborhours.Theactivitybasedcostingsystemwoulduse
threeactivitycostpools.Datarelatingtotheseactivities
forthecurrentperiodaregivenbelow:
Estimated
ActivityOverheadExpectedActivity
CostPoolCostsProductCProductDTotal
MachinesetupsP12,19080150230
Purchaseorders79,2007309201,650
Generalfactory69,4004,7609,12013,880
P160,790
Determinetheunitproductcostofeachproductforthe
currentperiodusingtheactivitybasedcostingapproach.
Answer:
a.Theexpectedtotaldirectlaborhoursduringtheperiodare
computedasfollows:
ProductC:3,400unitsx1.4hr.4,760hours
ProductD:4,800unitsx1.9hrs.9,120hours
Totaldirectlaborhours13,880hours
Usingthesehoursasabase,thepredeterminedoverhead
usingdirectlaborhourswouldbe:
Estimatedoverheadcost,P160,790
Estimateddirectlaborhours,13,880=P11.58/DLH

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Usingthisoverheadrate,theunitproductcostsare:
ProductCProductD
DirectmaterialsP7.40P12.70
Directlabor14.0019.00
Manufacturingoverhead16.2222.01
TotalunitproductcostP37.62P53.71
b.Theoverheadratesforeachactivitycenterareasfollows:
Estimated
OverheadExpectedOverhead
CostsActivityRate
MachinesetupsP12,190230P53.00
PurchaseordersP79,2001,650P48.00
GeneralfactoryP69,40013,880P5.00
Theoverheadcostchargedtoeachproductis:

ProductCProductD

ActivityAmountActivityAmount
Machinesetups80P4,240150P7,950
Purchaseorders73035,04092044,160
Generalfactory4,76023,8009,12045,600
TotaloverheadcostP63,080P97,710
Overheadcostperunit:
ProductC:P63,0803,400units=P18.55perunit.
ProductD:P97,7104,800units=P20.36perunit.
Usingactivitybasedcosting,theunitproductcostofeach
productwouldbe:
ProductCProductD
DirectmaterialsP7.40P12.70
Directlabor14.0019.00
Manufacturingoverhead18.5520.36
TotalunitproductcostP39.95P52.06

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90.
Hard

LionelCorporationmanufacturestwoproducts,ProductBand
ProductH.ProductHisoffairlyrecentorigin,havingbeen
developedasanattempttoenteramarketcloselyrelatedto
thatofProductB.ProductHisthemorecomplexofthetwo
products,requiringtwohoursofdirectlabortimeperunitto
manufacturecomparedtoonehourofdirectlabortimefor
ProductB.ProductHisproducedonanautomatedproduction
line.
Overheadiscurrentlyassignedtotheproductsonthebasisof
directlaborhours.Thecompanyestimateditwouldincur
P450,000inmanufacturingoverheadcostsandproduce7,500
unitsofProductHand30,000unitsofProductBduringthe
currentyear.Unitcostsformaterialsanddirectlaborare:
ProductBProductH
Directmaterial.....P12P25
Directlabor........P10P20
Required:
1.Computethepredeterminedoverheadrateunderthecurrent
methodofallocationanddeterminetheunitproductcostof
eachproductforthecurrentyear.
2.Thecompany'soverheadcostscanbeattributedtofourmajor
activities.Theseactivitiesandtheamountofoverheadcost
attributabletoeachforthecurrentyeararegivenbelow:

EstimatedExpectedActivity

OverheadProductProduct
ActivityCostPoolsCostsBHTotal

Machinesetupsrequired...P180,0006001,2001,800
Purchaseordersissued....38,382500100600
Machinehoursrequired....92,6506,80010,20017,000
Maintenancerequestsissued138,9686939071,600
P450,000
Usingthedataaboveandanactivitybasedcostingapproach,
determinetheunitproductcostofeachproductforthecurrent
year.
Answer:
1.Thecompanyexpectstowork45,000directlaborhoursduring
thecurrentyear,computedasfollows:
ProductB:30,000unitsx1hr......30,000hours
ProductH:7,500unitsx2hrs.....15,000hours
Totaldirectlaborhours.............45,000hours

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Usingthesehoursasabase,thepredeterminedoverheadusing
directlaborhourswouldbe:
Pred.ovhd.rate=P450,00045,000DLHs=P10.00/DLH
Usingthisoverheadrate,theunitproductcostofeachproduct
wouldbe:
ProductProduct

B___H

Directmaterials..............P12P25
Directlabor..................1020
Manufacturingoverhead:
ProductBonehour10
ProductHtwohours......_____20
Total.........................P32P65
2.Theoverheadratesarecomputedasfollows:
EstimatedTotal
OverheadExpected
ActivityCostPoolsCostsActivityRate

Machinesetups.......P180,0001,800P100.000/setup
Purchaseorders......38,38260063.970/order
Machinehours........92,65017,0005.450/hour
Maintenancerequests.138,9681,60086.855/request
P450,000
Theoverheadcostattributabletoeachproductis:

ProductBProductH

ActivityAmountActivityAmount
Machinesetups,
P100.00/setup........600P60,0001,200P120,000
Purchaseorders,
P63.97/order.........50031,9851006,397
Machinehours,P5.45/hour6,80037,06010,20055,590
Maintenancerequest,
atP86.855/request...69360,19190778,777
P189,236P260,764
Overheadcostperunit:
ProductB:P189,23630,000units=P6.3079/unit.
ProductH:P260,7647,500units=P34.7685/unit.

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Usingactivitybasedcosting,theunitproductcostofeach
productwouldbe:
ProductBProductH
Directmaterials...............P12.0000P25.0000
Directlabor...................10.000020.0000
Manufacturingoverhead.........6.307934.7685
Totalunitproductcost.....P28.3079P79.7685
91.
Hard

FlyerCorporationmanufacturestwoproducts,ProductAand
ProductB.ProductBisoffairlyrecentorigin,havingbeen
developedasanattempttoenteramarketcloselyrelatedto
thatofProductA.ProductBisthemorecomplexofthetwo
products,requiringthreehoursofdirectlabortimeperunit
tomanufacturecomparedtooneandonehalfhoursofdirect
labortimeforProductA.ProductBisproducedonanautomated
productionline.
Overheadiscurrentlyassignedtotheproductsonthebasisof
directlaborhours.Thecompanyestimateditwouldincur
P396,000inmanufacturingoverheadcostsandproduce5,500
unitsofProductBand22,000unitsofProductAduringthe
currentyear.Unitcostsformaterialsanddirectlaborare:
ProductAProductB
Directmaterial......P9P20
Directlabor.........P7P15
Required:
1.Computethepredeterminedoverheadrateunderthecurrent
methodofallocationanddeterminetheunitproductcostof
eachproductforthecurrentyear.
2.Thecompany'soverheadcostscanbeattributedtofourmajor
activities.Theseactivitiesandtheamountofoverheadcost
attributabletoeachforthecurrentyeararegivenbelow:
EstimatedExpectedActivity

OverheadProductProduct
ActivityCostPoolsCostsABTotal

Machinesetupsrequired...P170,0007001,0001,700
Purchaseordersissued....37,000300200500
Machinehoursrequired....91,0004,0009,00013,000
Maintenancerequestsissued98,0004006001,000
P396,000
Usingthedataaboveandanactivitybasedcostingapproach,
determinetheunitproductcostofeachproductforthecurrent
year.

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Answer:
1.Thecompanyexpectstowork45,000directlaborhoursduring
thecurrentyear,computedasfollows:
ProductA:22,000unitsx1.5hr......33,000hours
ProductB:5,500unitsx3.0hrs.....16,500hours
Totaldirectlaborhours...............49,500hours
Usingthesehoursasabase,thepredeterminedoverheadusing
directlaborhourswouldbe:
Pred.ovhd.rate=P396,00049,500DLHs=P8.00/DLH
Usingthisoverheadrate,theunitproductcostofeachproduct
wouldbe:
ProductProduct

A___B

Directmaterials.............P9P20
Directlabor.................715
Manufacturingoverhead:
ProductB1.5hour.........12
ProductHthreehours......24
Total........................P28P59
2.Theoverheadratesarecomputedasfollows:
EstimatedTotal
OverheadExpected
ActivityCostPoolsCostsActivityRate

Machinesetups.......P170,0001,700P100/setup
Purchaseorders......37,00050074/order
Machinehours........91,00013,0007/hour
Maintenancerequests.98,0001,00098/request
P396,000
Theoverheadcostattributabletoeachproductis:

ProductBProductH

ActivityAmountActivityAmount
Machinesetups,
P100.00/setup.......700P70,0001,000P100,000
Purchaseorders,
P74.00/order........30022,20020014,800
Machinehours,
P7.00/hour4,000....28,0009,00063,000
Maintenancerequest,
atP98.00/request...40039,20060058,800
P159,400P236,600

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Overheadcostperunit:
ProductA:P159,40022,000units=P7.2455/unit.
ProductB:P236,6005,500units=P43.0182/unit.
Usingactivitybasedcosting,theunitproductcostofeach
productwouldbe:
ProductAProductB
Directmaterials..............P9.0000P20.0000
Directlabor..................7.000015.0000
Manufacturingoverhead........7.245543.0182
Totalunitproductcost....P23.2455P78.0182
92.
Hard

EMDCorporationmanufacturestwoproducts,ProductSand
ProductW.ProductWisoffairlyrecentorigin,havingbeen
developedasanattempttoenteramarketcloselyrelatedto
thatofProductW.ProductWisthemorecomplexofthetwo
products,requiringonehourofdirectlabortimeperunitto
manufacturecomparedtoonehalfhourofdirectlabortimefor
ProductS.ProductWisproducedonanautomatedproduction
line.
Overheadiscurrentlyassignedtotheproductsonthebasisof
directlaborhours.Thecompanyestimateditwouldincur
P500,000inmanufacturingoverheadcostsandproduce10,000
unitsofProductWand60,000unitsofProductSduringthe
currentyear.Unitcostformaterialsanddirectlaborare:
ProductSProductW
Directmaterial....P10P24
Directlabor.......P8P12
Required:
1.Computethepredeterminedoverheadrateunderthecurrent
methodofallocationanddeterminetheunitproductcostof
eachproductforthecurrentyear.

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2.Thecompany'soverheadcostscanbeattributedtofourmajor
activities.Theseactivitiesandtheamountofoverheadcost
attributabletoeachforthecurrentyeararegivenbelow:

EstimatedExpectedActivity

OverheadProductProduct
ActivityCostPoolsCostsSWTotal

Machinesetupsrequired..P200,0008001,2002,000
Purchaseordersissued...43,500500100600
Machinehoursrequired...104,0003,00010,00013,000
Maintenancerequests
issued................152,5008601,1402,000
P500,000
Usingthedataaboveandanactivitybasedcostingapproach,
determinetheunitproductcostofeachproductforthecurrent
year.
Answer:
1.Thecompanyexpectstowork40,000directlaborhoursduring
thecurrentyear,computedasfollows:
ProductS:60,000unitsx0.5hr.....30,000hours
ProductW:10,000unitsx1.0hrs....10,000hours
Totaldirectlaborhours..............40,000hours
Usingthesehoursasabase,thepredeterminedoverheadusing
directlaborhourswouldbe:
Pred.ovhd.rate=P500,00040,000DLHs=P12.50/DLH
Usingthisoverheadrate,theunitproductcostofeachproduct
wouldbe:
ProductProduct

SW

Directmaterials............P10.00P24.00
Directlabor................8.0012.00
Manufacturingoverhead:
ProductBhalfhour....6.25
ProductHonehour.....12.50
Total.......................P24.25P48.50

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2.Theoverheadratesarecomputedasfollows:
EstimatedTotal
OverheadExpected
ActivityCostPoolsCostsActivityRate

Machinesetups.....P200,0002,000P100.00/setup
Purchaseorders....43,50060072.50/order
Machinehours......104,00013,0008.00/hour
Maintenancerequests152,5002,00076.25/request
P500,000
Theoverheadcostattributabletoeachproductis:

ProductSProductW

ActivityAmountActivityAmount
Machinesetups,
P100.00/setup......800P80,0001,200P120,000
Purchaseorders,
P72.50/order.......50036,2501007,250
Machinehours,
P8.00/hour.........3,00024,00010,00080,000
Maintenancerequest,
atP76.25/request..86065,5751,14086,925
P205,825P294,175
Overheadcostperunit:
ProductS:P205,82560,000units=P3.4304/unit.
ProductW:P294,17510,000units=P29.4175/unit.
Usingactivitybasedcosting,theunitproductcostofeach
productwouldbe:
ProductSProductW
Directmaterials..............P10.0000P24.0000
Directlabor..................8.000012.0000
Manufacturingoverhead........3.430429.4175
Totalunitproductcost....P21.4304P65.4175

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93.
Medium

DabaCompanymanufacturestwoproducts,ProductFandProduct
G.Thecompanyexpectstoproduceandsell1,400unitsof
ProductFand1,800unitsofProductGduringthecurrentyear.
Thecompanyusesactivitybasedcostingtocomputeunitproduct
costsforexternalreports.Datarelatingtothecompanys
threeactivitycostpoolsaregivenbelowforthecurrentyear:
Estimated
ActivityOverheadExpectedActivity
CostPoolCostsProductFProductGTotal
MachinesetupsP10,80080100180
PurchaseordersP77,5205101,0101,520
GeneralfactoryP75,9202,2403,6005,840
Required:
Usingtheactivitybasedcostingapproach,determinethe
overheadcostperunitforeachproduct.
Answer:
Theoverheadratesforeachactivitycenterareasfollows:
Estimated
ActivityOverheadExpectedOverhead
CostPoolCostsActivityRate
MachinesetupsP10,800180P60.00
PurchaseordersP77,5201,520P51.00
GeneralfactoryP75,9205,840P13.00
Theoverheadcostchargedtoeachproductis:

ProductFProductG

ActivityAmountActivityAmount
Machinesetups80P4,800100P6,000
Purchaseorders51026,0101,01051,510
Generalfactory2,24029,1203,60046,800
TotaloverheadcostP59,930P104,310
Overheadcostperunit:
ProductF:P59,9301,400units=P42.81perunit.
ProductG:P104,3101,800units=P57.95perunit.

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