Business, 13.07.2021 15:40 bncm766

Assume that a company makes only three products: Product A, Product B, and Product C. Currently, the company uses a conventional cost system that relies on plantwide overhead cost allocation based on direct labor-hours. It is considering replacing its conventional cost system with an activity-based costing (ABC) system. The ABC system would include a total of four activities: Assembly (allocated to products based on direct labor-hours), Machine Setups (allocated to products based on number of setups), Material Handling (allocated to products based on the number of material moves), and Product Design (allocated to products based on the number of products).

Product A Product B Product C
Number of units produced 1,000 units 7,000 units 2,000 units
Direct labor hours per unit 2 hours 2 hours 2 hours
Number of setups 30 setups 50 setups 20 setups
Number of material moves 600 moves 400 moves 200 moves
Number of products 1 product 1 product 1 product

Using the activity-based costing approach, what percent of the company’s total Material Handling activity cost would be allocated to Product B?

a. 70%
b. 25%
c. 40%
d. 33%

Answers: 3

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