[nishvik]

Hello A71 friends,

I am really stuck at this topic,somehow I am not able to understand and solve any MCQ’s on this topic..I know the theory but no idea on MCQ.

Question CPA-03959

Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information given below.

Units produced Wall Mirrors – 25 || Specialty Windows 25

Material moves per product line Wall Mirrors – 5 || Specialty Windows-15

Direct labor hours per unit Wall Mirrors- 200 || Specialty Windows-200

Budgeted materials handling costs $50,000

Under a costing system that allocates overhead on the basis of direct labor hours, the materials handling costs allocated to one unit of wall mirrors would be:

a. $1,000

b. $500

c. $2,000

d. $5,000

Explanation

Choice “a” is correct. $1,000.

Wall mirrors – 25 units x 200 hours per unit =5,000 hours

Specialty windows – 25 units x 200 hours per unit= 5,000 hours

Total hours 10,000 hours

Budgeted materials handling costs $50,000

Divided by total hours ÷10,000

Materials handling cost per hour $ 5

Hours per unit x 200

Costs allocated to one unit $ 1,000.

Also given same information how would you calculate under Activity Based Costing Method?

Does anyone know how to start/trick for solving them.I dont want to memorize them but understand.

Any Explanation/input would be really appreciative 🙂

FAR- 79 -->Becker self study, Final review & Flashcards
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AUD- 73 Becker,72-->Becker+Wiley,69-->Added ninja notes,89 --> Added Gleim review
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I am Done !!!!

[Whopper Warrior]

Activity Based Costing is the use of multiple costs, while a single activity uses a single activity to base costs on. In this problem we have $50,000 to allocate.

Under a single activity…

the problem provides we use hours to allocate costs. If we produce 50 windows each requiring 200 hours, we find that we have an hour allocation base of 10,000. 50,000 / 10,000 equals 5$ which represents cost / labor hours. As labor hours are incurred we apply the cost, so for one mirror, we need 200 hours, or 200×5 equlas 1,000. The trick to single activity is to find the TOTAL number of hours budgeted, and then apply.

Under Activity Based Costing (ABC)…

Same principle, but we use apples to apples. Direct Labor hours are not materiall handling costs. Under a single we applied with hours under ABC we could use the Material Moves which would be a better representative.

Step 1: Total Moves

Wall Mirrors: 25 mirrors x 5 moves equals 125 moves

Specialty Mirros: 25 mirrors x 15 moves equals 375 moves

Total Material Handling Moves: 500

Step 2 Find the Allocation Base

50,000 moves cost / 500 moves equals $100 per move.

Step 3 Apply

1 wall mirror x 5 moves per mirror x $100 per move equals $500

As we can see single is a simplified version of ABC, or ABC is a single base done multiple times over for product line. Pay attention to the pull of the question and how they apply overhead. I hope this helps, please ask for clarification.

sent from android, apologies for poor spelling and syntax.

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Whopper Warrior]

Activity Based Costing is the use of multiple costs, while a single activity uses a single activity to base costs on. In this problem we have $50,000 to allocate.

Under a single activity…

the problem provides we use hours to allocate costs. If we produce 50 windows each requiring 200 hours, we find that we have an hour allocation base of 10,000. 50,000 / 10,000 equals 5$ which represents cost / labor hours. As labor hours are incurred we apply the cost, so for one mirror, we need 200 hours, or 200×5 equlas 1,000. The trick to single activity is to find the TOTAL number of hours budgeted, and then apply.

Under Activity Based Costing (ABC)…

Same principle, but we use apples to apples. Direct Labor hours are not materiall handling costs. Under a single we applied with hours under ABC we could use the Material Moves which would be a better representative.

Step 1: Total Moves

Wall Mirrors: 25 mirrors x 5 moves equals 125 moves

Specialty Mirros: 25 mirrors x 15 moves equals 375 moves

Total Material Handling Moves: 500

Step 2 Find the Allocation Base

50,000 moves cost / 500 moves equals $100 per move.

Step 3 Apply

1 wall mirror x 5 moves per mirror x $100 per move equals $500

As we can see single is a simplified version of ABC, or ABC is a single base done multiple times over for product line. Pay attention to the pull of the question and how they apply overhead. I hope this helps, please ask for clarification.

sent from android, apologies for poor spelling and syntax.

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Author]

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