Question

Colorado Furniture Company manufactures bookshelves and uses an activity based costing system to allocate all manufacturing overhead costs. Each bookshelf consists of 6 parts and uses 3 direct labor hours. The direct labor costs $15 per hour and the direct materials per bookshelf is $35. The following information is provided regarding estimated overhead costs: Basis Estimated Basis Activity Materials Handling Assembling Packaging Estimated MOH Costs $7,500 $11,900 $2,160 Number of Parts Number of Parts Number of Bookshelves 7080 parts 7080 parts 1,180 bookshelves O 96.44 53.27 098.27 O 18.27 QUESTION 20 ОО A company's income statement includes gross profit. What kind of company is it? A service company. A merchandising company. A manufacturing company. A merchandising or a manufacturing company. All companies have gross profit.

Answer 1

Computation of Activity Rate
Activities	Costs	Activity Base	Cost driver total	Overhead rate(Costs/Cost driver total)
Materials Handling	$7,500	Number of Parts	7,080	$1.06	per part
Assembling	$11,900	Number of Parts	7,080	$1.68	per part
Packaging	$2,160	Number of Bookshelves	1,180	$1.83	per bookshelves
	ABC rate	Activity Based usage	Activity Based usage*ABC rate
Materials Handling	$                                    1.06	6	$                                           6.36
Assembling	$                                    1.68	6	$                                         10.08
Packaging	$                                    1.83	1	$                                           1.83
Manufacturing Cost per Bookshelves			$                                         18.27
Calculation of Product Cost per bookshelf
Direct Material Costs per bookshelf	$                                  35.00
Direct labor Costs per bookshelf($15*3 hrs)	$                                  45.00
Manufacturing Cost per Bookshelves	$                                  18.27
Product Cost per bookshelf	$                                  98.27
So Option C is answer

As per IFRS every company reports Gross Profit in it's Year end Income Statement which is equal to Revenue less Cost of goods sold/Cost of Sales. The nature of company is not considered. For example Infosys is a service providing Tech company but it shows Gross Profit in it's Income Statement.

So in my opinion Option E-All companies have Gross Profit should be the correct answer