Question

7. Canton Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period: Cost Pool Materials handling Machine maintenance Setups Inspections Total support costs Overhead Costs $46,000 $360,000 $258,780 $149,800 $814,580 Activity-cost driver 97,000 orders 19,000 maintenance hours 45,400 setups 21,400 inspections Production Estimates Production units: Regular = 12,000,000 units Jumbo = 24,000,000 units Machine-hours = 400,000 mh Labor-hours = 800,000 dlh Expected direct costs amounts to $927,000 for the period. Support cost requirements of both products are substantially different from one another. Zitriks uses an ABC costing system. Which of the following is true of Canton's overhead costing? A) Multiple cost pools are appropriate for Canton's because of high direct costs. B) Single cost pool is appropriate for Canton's because of high direct costs. C) Multiple cost pools are appropriate for Canton's because of diverse support costs. D) Single cost pool is appropriate for Canton's because of diverse support costs.

Answer 1

Multiple cost pools are approporiate for cantons because of Diverse support costs. Since Cantons has diverse cost pools it has to use diverse support costs for apprporiate allocation of overhead for each cost pool.

so answer is Option C)