Use the following information for the next five questions:
Hi-Def Video Company makes two types of digital DVD players, economy and deluxe, with the following per unit cost information:
The company currently applies $1 million in manufacturing overhead to the two products on the basis of direct labor hours. Both products require two hours of direct labor.
1. What rate is currently used to apply manufacturing overhead to the two products?
a. $100 per unit.
b. $100 per direct labor hour.
c. $50 per unit.
d. $50 per direct labor hour.
Assume that High-Def has decided to implement an ABC system and has assigned the $1 million in manufacturing overhead to four activities, which will be assigned to the two products based on the following activity drivers:
2. What is the activity rate for the material handling activity cost pool?
a. $ 2.50 per part.
b. $ 4.00 per part.
c. $ 8.00 per part.
d. $10.50 per part.
3. Using the activity proportion method, how much of the quality control cost would be assigned to the economy model?
a. 20% of $500,000 $100,000.
b. 40% of $500,000 $200,000.
c. 60% of $500,000 $300,000.
d. 80% of $500,000 $400,000.
4. In comparing the results of ABC with the volume-based cost system (based on direct labor hours), which of the following statements is most likely to be true?
a. The current cost system will overcost the deluxe model compared to ABC.
b. The current cost system will undercost the economy model compared to ABC.
c. The current cost system will overcost the economy model compared to ABC.
d. Both a and b are true.