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WGU Accounting-for-Decision-Makers Exam - Topic 5 Question 4 Discussion
Topic #: 5
A manufacturer produces three products A, B, and C.
The company uses the following information to determine activity rates for each pool.
Cost Pool Costs Total Activity
Pool 1 $300,000 20,000 hours
Pool 2 $20,000 500 pounds
Pool 3 $10,000 100 moves
Data concerning the three products appear in the following table.
Cost Driver Product A Product B Product C
Number of hours 10,000 7,500 2,500
Number of pounds 150 250 100
Number of moves 20 40 50
What is the total amount of overhead applied to Product B?
The correct answer is B. $126,500. Under activity-based costing (ABC), each cost pool gets its own activity rate, and then overhead is applied to the product based on that product's actual use of each activity. OpenStax and ACCA both describe ABC as assigning overhead through multiple activity pools and cost drivers rather than one broad rate.
First compute the rate for each pool:
Pool 1 rate = $300,000 / 20,000 hours = $15 per hour
Pool 2 rate = $20,000 / 500 pounds = $40 per pound
Pool 3 rate = $10,000 / 100 moves = $100 per move
Now apply those rates to Product B:
Hours: 7,500 $15 = $112,500
Pounds: 250 $40 = $10,000
Moves: 40 $100 = $4,000
Total overhead for Product B = $112,500 + $10,000 + $4,000 = $126,500
Option C, $158,000, is actually the overhead for Product A, which is a classic trap in this question. Because ABC assigns overhead based on each product's own activity consumption, Product B's correct total overhead is $126,500.
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