Figure 4-16 Newman Company recently installed an activity-based relational database.Using the information contained in the activity relational table, the following pool rates were computed:
$400 per purchase order
$24 per machine hour, Process 1
$30 per machine hour, Process 2
$80 per engineering hour
Two products are produced by Special Products: X and Y.The plant has two manufacturing processes, Process 1 and Process 2.Other processes include engineering, product handling, and procurement.Product X goes through Process 1 while Product Y goes through Process 2.The product relational table for Special Products is as follows:

- Refer to Figure 4-16.How much engineering overhead cost will be assigned to Product Y using engineering hours?
A) $100,000
B) $120,000
C) $2,000,000
D) $801,000

Question

Figure 4-16 Newman Company recently installed an activity-based relational database.Using the information contained in the activity relational table, the following pool rates were computed:
$400 per purchase order
$24 per machine hour, Process 1
$30 per machine hour, Process 2
$80 per engineering hour
Two products are produced by Special Products: X and Y.The plant has two manufacturing processes, Process 1 and Process 2.Other processes include engineering, product handling, and procurement.Product X goes through Process 1 while Product Y goes through Process 2.The product relational table for Special Products is as follows:

- Refer to Figure 4-16.How much engineering overhead cost will be assigned to Product Y using engineering hours?
A) $100,000 
B) $120,000 
C) $2,000,000 
D) $801,000

Quizplus · Accepted Answer

Product Y only goes through Process 2, which has a machine hour rate of $30 and no engineering hours. Therefore, the engineering cost assigned to Product Y will be based on the engineering hours used in the other processes. According to the activity relational table, the total engineering hours used in all processes other than Process 2 is 4,000 hours. Therefore, the total engineering overhead cost assigned to Product Y will be 4,000 x $80 = $320,000. However, since Product Y only represents half of Special Products' total production, we must divide this amount by 2, which gives us $160,000. Therefore, the engineering overhead cost assigned to Product Y using engineering hours is $160,000 or choice B.

Figure 4-16 Newman Company Recently Installed an Activity-Based Relational Database