Chapter 8 practice quiz

Chapter 8 practice quiz - 40,000 20,000 Direct materials...

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Ch. 8 Practice Quiz Thelma’s Thermostats uses a traditional approach to overhead allocation. The company produces a regular (Model R) and a programmable (Model P) thermostat. In 2007, the company incurred $300,000 of factory overhead and produced 40,000 units of Model R and 20,000 units of Model P. Overhead was allocated to the products on the basis of direct labor hours. The market is becoming more competitive, so the firm is considering the use of activity-based costing (ABC) in 2008. Analysis of the 2007 data revealed that overhead costs could be assigned to three activities, as follows: Activity Cost Pool Activity Measure Estimated Cost Setup Number of setups $20,000 Materials handling Pounds of material 60,000 Equipment operations Machine hours 220,000 $300,000 The following actual data were recorded in 2007: Model R Model P Number of units
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Unformatted text preview: 40,000 20,000 Direct materials cost per unit $6 $10 Direct labor cost per unit $5 $5 Direct labor hours 20,000 10,000 Number of setups 100 60 Pounds of material handled 60,000 60,000 Machine hours 14,000 26,000 Required: 1. Compute the unit product cost for each product. Allocate overhead using the traditional method based on direct labor hours. 2. Compute the unit product cost using the ABC system to allocate overhead to each product. 3. Which costing system—the traditional system or the ABC system—is more accurate? Why? 4. Does the traditional system under-cost or over-cost Model R? Why? Answers to Ch. 8 Quiz 1. R=$16; P=$20 2. R=$13.9875; P=$24.025 3. ABC. When products consume resources differently, ABC lets management better understand the cost of producing different products....
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This test prep was uploaded on 04/22/2008 for the course ACC 2304 taught by Professor Robinson during the Spring '08 term at Baylor.

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Chapter 8 practice quiz - 40,000 20,000 Direct materials...

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