Canton Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period:

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.

Question

Canton Corp. manufactures two sizes of ceramic paperweights, regular and jumbo. The following information applies to their expectations for the planning period:

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.

Quizplus · Accepted Answer

The question states that the support cost requirements of both products are substantially different from each other, which means that the diverse support costs need to be allocated using multiple cost pools. Therefore, option C is the correct answer. Option A is incorrect as high direct costs alone do not determine the need for multiple cost pools. Option B is incorrect as it contradicts the information given in the question. Option D is incorrect as it states a single cost pool is appropriate for diverse support costs, which is not correct.