Question

43.

Miramar Industries manufactures two products: A and B. The manufacturing operation involves three overhead activities—production setup, material handling, and general factory activities. Miramar uses activity-based costing to allocate overhead to products. An activity analysis of the overhead revealed the following estimated costs and activity bases for these activities:

Activity	Cost	Activity Base
Production setup	$250,000	Number of setups
Material handling	150,000	Number of parts
General overhead	80,000	Number of direct labor hours

Each product's total activity in each of the three areas are as follows:

	Product A	Product B
Number of setups	100	300
Number of parts	40,000	20,000
Number of direct labor hours	8,000	12,000

What is the activity rate for general overhead?

a.$4.00 per direct labor hour

b.$6.67 per direct labor hour

c.$60.00 per direct labor hour

d.$10.00 per direct labor hour

46.

Magpie Corporation uses the total cost concept of product pricing. Below is cost information for the production and sale of 60,000 units of its sole product. Magpie desires a profit equal to a 25% rate of return on invested assets of $700,000.

Fixed factory overhead cost	$38,700
Fixed selling and administrative costs	7,500
Variable direct materials cost per unit	4.60
Variable direct labor cost per unit	1.88
Variable factory overhead cost per unit	1.13
Variable selling and administrative cost per unit	4.50

The markup percentage on total cost for the company's product is

a.24.0%

b.21.0%

c.15.8%

d.22.6%

Answer 1

Ans. 43	Option a    $4.00   per direct labor hour
	First of all we need to calculate the total activity of both products.
	Total activity (direct labor hours)    =   8,000 + 12,000   =   20,000 direct labor hours
	Activity rate for general overhead = Cost of general overhead / Total direct labor hours
	$80,000 / 20,000
	$4.00   per direct labor hour
Ans. 46	Option d    22.6%
	*Calculations of Total variable cost :
	Direct materials cost per unit	$4.60
	Direct labor cost per unit	$1.88
	Variable factory overhead cost per unit	$1.13
	Variable selling and administrative cost per unit	$4.50
	Total variable cost per unit (a)	$12.11
	Number of units produced and sold (b)	60000
	Total variable cost   (a*b)	$726,600
	*Calculations of Total cost:
	Total variable cost	$726,600
	Fixed factory overhead cost	$38,700
	Fixed selling and administrative cost	$7,500
	Total Cost	$772,800
	Desired profit   =   Invested assets * Rate of return
	$700,000 * 25%
	$175,000
	Markup percentage on total cost =   Desired profit / Total cost * 100
	$175,000 / $772,800 * 100
	22.6%