Activity-Based Costing and Management IV. Multiple Choice Tiems, through 10 are based on the following information. d hours 12 cost 48.000 4.000 Shine Co. had an order for 700 laser printers. Following is a list of production requirements for the order: Number of inspections 175 Number of repetitions 180 5 Number of invoices processed Direct labor hours 650 11. Using activity-based costing, applied factory overhead for the 700 laser printer order based on the number of inspections is calculated to be: P 7,800. c. P150 b. P10,500 d. P21,600 a.

Question:

Activity-Based Costing and Management IV. Multiple Choice Tiems, through 10 are based on the following information. Wonders Inc. manufactures radios in two different styles: Annual Sales Radio Model in Units Starry 10,000 Polka 16,000 Wonders uses a traditional volume-based costing system in applying factory overhead using direct labor pesos. The unit prime costs of each product were as follows: Starry Polka Direct materials P38.00 P25.40 Direct labor: 1.2 x P14.60 = 17.52 0.9 x P14.60 = 13.14 The predetermined overhead rate was 350% (P1,349,040 + 385,440). Direct labor budget per annual sales: Starry radio 10,000 x P17.52 P175,200 Polka radio 16,000 x P13.14 210,240 Total P385,440 Factory overhead: Engineering and Design P 404,712 Quality Control 269,808 Machinery 539,616 Miscellaneous Overhead 134,904 Total P1.349,040 Wonders’ controller had been researching activity-based costing and decided to switch to it. A special study determined Wonders’ two radio models were responsible for the following proportions of each cost driver: Starry Polka Engineering and Design 40% 60% Quality Control 45% 55% Machinery 60% 40% Miscellaneous Overhead 35% 65% 302 Chapter 9 1. C. 2. Using traditional costing, applied factory overhead per unit for the Starry model is calculated to be: P61.32 P43.42 b. P65.43. d. P45.99. Using traditional costing, applied factory overhead per unit for the Polka model is calculated to be: P61.32 c. P43.42. b. P65.43 d. P45.99. Using activity-based costing, applied factory overhead per unit for the Starry model based on Engineering and Design, is calculated to be: P32.38. c. P16.19. P12.14. d. P 4.72. 3. a. b. 4. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Quality Control, is calculated to be: P32.38. P16.19. P12.14. d. P 4.72 c. a. b. 5. C. a. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Machinery, is calculated to be: P32.38 P16.19 b. P12.14. d. P 4.72. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Miscellaneous Overhead, is calculated to be: P32.38. P16.19. b. P12.14. d. P 4.72 6. C. a. 7. Using activity-based costing, applied factory overhead per unit for the Polka model, based on Engineering and Design, is calculated to be: P15.18 P 5.48. b. P 9.27. d. P13.49. c. a. 8. Using activity-based costing, applied factory overhead per unit for the Polka model, based on Quality Control, is calculated to be: P15.18. P 5.48. b. P 9.27. d. a. P13.49 9. Using activity-based costing, applied factory overhead per unit for the Polka model, based on Machinery, is calculated to be: 303 P1S.18. P 9.27 Activity-Based Costing and Management a. b. P 5.48. d. P13.49. 10. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Miscellaneous Overhead, is calculated to be: a. P15.18. b. P 9.27. c. P 5.48 d. P13.49. Items 11 through 14 are based on the following information. Shine Co. manufactures laser printers. overhead cost drivers: It has outlined the following Budgered Budgeted Overhead Overheud Level for Cost Overhead Cost Pool Cost Driver Cost Driver Rate Quality Inspections control P 64.800 1,080 P 60 Machine Repetitions repetitions 132.000 1.100 120 Accounts Invoices receivable 900 30 30 Other Direct labor overhead hours 12 cost 48.000 4.000 Shine Co. had an order for 700 laser printers. Following is a list of production requirements for the order: Number of inspections 175 Number of repetitions 180 5 Number of invoices processed Direct labor hours 650 11. Using activity-based costing, applied factory overhead for the 700 laser printer order based on the number of inspections is calculated to be: P 7,800. c. P150 b. P10,500 d. P21,600 a.

Answer:

1. Using traditional costing, applied factory overhead per unit for the Starry model is calculated to be:

a. P61.32 b. P43.42 c. P65.43 d. P45.99

Answer: The correct answer is a. P61.32.

This is calculated by multiplying the predetermined overhead rate (P3.50) by the Starry model’s direct labor cost per unit (P17.52).

2. Using traditional costing, applied factory overhead per unit for the Polka model is calculated to be:

a. P61.32 b. P43.42 c. P65.43 d. P45.99

Answer: The correct answer is d. P45.99.

This is calculated by multiplying the predetermined overhead rate (P3.50) by the Polka model’s direct labor cost per unit (P13.14).

3. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Engineering and Design, is calculated to be:

a. P32.38 b. P16.19 c. P12.14 d. P4.72

Answer: The correct answer is a. P32.38.

This is calculated by multiplying the Engineering and Design cost driver rate (P10,118 per 40% unit) by the Starry model’s proportion of Engineering and Design activity (40%).

4. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Quality Control, is calculated to be:

a. P32.38 b. P16.19 c. P12.14 d. P4.72

Answer: The correct answer is b. P16.19.

This is calculated by multiplying the Quality Control cost driver rate (P6,018 per 45% unit) by the Starry model’s proportion of Quality Control activity (45%).

5. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Machinery, is calculated to be:

a. P32.38 b. P16.19 c. P12.14 d. P4.72

Answer: The correct answer is c. P12.14.

This is calculated by multiplying the Machinery cost driver rate (P8,994 per 60% unit) by the Starry model’s proportion of Machinery activity (60%).

6. Using activity-based costing, applied factory overhead per unit for the Starry model, based on Miscellaneous Overhead, is calculated to be:

a. P32.38 b. P16.19 c. P12.14 d. P4.72

Answer: The correct answer is d. P4.72.

This is calculated by multiplying the Miscellaneous Overhead cost driver rate (P3,854 per 35% unit) by the Starry model’s proportion of Miscellaneous Overhead activity (35%).

7. Using activity-based costing, applied factory overhead per unit for the Polka model, based on Engineering and Design, is calculated to be:

a. P15.18 b. P9.27 c. P5.48 d. P13.49

Answer: The correct answer is a. P15.18.

This is calculated by multiplying the Engineering and Design cost driver rate (P10,118 per 40% unit) by the Polka model’s proportion of Engineering and Design activity (60%).

8. Using activity-based costing, applied factory overhead per unit for the Polka model, based on Quality Control, is calculated to be:

a. P15.18 b. P9.27 c. P5.48 d. P13.49

Answer: The correct answer is b. P9.27.

This is calculated by multiplying the Quality Control cost driver rate (P6,018 per 45% unit) by the Polka model’s proportion of Quality Control activity (55%).

Activity-Based Costing for Wonders Inc. & Shine Co.

Wonders Inc.:

1. & 2. Traditional Costing:

a) Calculate the predetermined overhead rate per unit of direct labor: P1,349,040 / 385,440 = P3.50 b) Apply the rate to direct labor costs: – Starry: P17.52 x P3.50 = P61.32 – Polka: P13.14 x P3.50 = P45.99

3. – 6. Activity-Based Costing (Starry):

a) Calculate cost driver rates for each activity: – Engineering & Design: P404,712 / 40% = P10,118 per 40% unit – Quality Control: P269,808 / 45% = P6,018 per 45% unit – Machinery: P539,616 / 60% = P8,994 per 60% unit – Miscellaneous Overhead: P134,904 / 35% = P3,854 per 35% unit b) Apply cost driver rates to the Starry model’s proportions: – Engineering & Design: P10,118 x 40% = P4,047 – Quality Control: P6,018 x 45% = P2,708 – Machinery: P8,994 x 60% = P5,396 – Miscellaneous Overhead: P3,854 x 35% = P1,351

7. – 10. Activity-Based Costing (Polka):

Follow the same steps as for Starry, using the Polka model’s proportions:

  • Engineering & Design: P15.18
  • Quality Control: P13.49
  • Machinery: P9.27
  • Miscellaneous Overhead: P5.48

Shine Co.:

11. Activity-Based Costing (Laser Printers):

a) Apply the number of inspections to the cost driver rate: P64.800 / 1,080 inspections/unit = P60 per inspection b) Multiply the cost driver rate by the number of inspections: P60/inspection x 175 inspections = P10,500

Therefore:

  • Wonders Inc. should use activity-based costing for a more accurate allocation of overhead costs.
  • Shine Co.’s applied factory overhead for the laser printer order based on inspections is P10,500.

I hope this explanation clarifies the multiple-choice questions and provides a complete solution for the Wonders Inc. and Shine Co. scenarios.

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