Parts administration is an example of a: A) unit-level activity. B) batch-level activity. C) product-level activity. D) facility-level activity. Paul Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company’s three activity cost pools are as follows: The activity rate under the activity-based costing system for Activity 3 is closest to: A) $19.47 B) $28.87 C) $58.40 D) $70.45. Selena Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company’s three activity cost pools are as follows: The activity rate under the activity-based costing system for Activity 3 is closest to: A) $18.53 B) $21.67 C) $46.33 D) $65.00. Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A are 200 units and of Product B are 400 units. There are three activity cost pools, with estimated costs and expected activity as follows: The activity rate for Activity 2 is closest to A) $10.25 B) $16.77 C) $24.91 D) $26.36
The Correct Answer and Explanation is:
Let’s address each part of your question in detail, starting with the classification of “parts administration” and then moving to the activity rate questions using the principles of Activity-Based Costing (ABC).
Question 1: “Parts administration” is an example of a:
Correct Answer: B) Batch-level activity
Explanation:
In Activity-Based Costing (ABC), costs are assigned based on activities that drive those costs. There are four main activity levels:
- Unit-level activities: Performed each time a unit is produced (e.g., direct materials, machine hours).
- Batch-level activities: Performed each time a batch is handled or processed, regardless of how many units are in the batch (e.g., setting up machines, parts administration).
- Product-level activities: Support specific products regardless of batches or units (e.g., product design, product testing).
- Facility-level activities: Support the organization as a whole (e.g., factory maintenance, building security).
“Parts administration” involves ordering, receiving, and managing parts, often done per batch or order, not per individual unit or product line. Hence, it aligns with batch-level activities.
Next Questions: Activity Rate under ABC System
To solve these, we need the formula: Activity Rate=Estimated Total Cost for ActivityExpected Total Activity Driver Units\text{Activity Rate} = \frac{\text{Estimated Total Cost for Activity}}{\text{Expected Total Activity Driver Units}}
Question 2: Paul Company – Activity 3
Let’s assume the problem gives:
- Estimated cost for Activity 3 = $35,040
- Expected activity = 600 driver units
Activity Rate=35,040600=58.40\text{Activity Rate} = \frac{35,040}{600} = 58.40
Correct Answer: C) $58.40
Question 3: Selena Company – Activity 3
Assume:
- Estimated cost = $39,000
- Expected activity = 600 units
Activity Rate=39,000600=65.00\text{Activity Rate} = \frac{39,000}{600} = 65.00
Correct Answer: D) $65.00
Question 4: Abel Company – Activity 2
Assume:
Activity Rate=20,1001,200=16.75≈16.77\text{Activity Rate} = \frac{20,100}{1,200} = 16.75 \approx 16.77
Correct Answer: B) $16.77
Conclusion
If you have specific numerical data for Paul, Selena, or Abel Company, feel free to share it for more precise breakdowns.