Davis Company uses an activity-based costing system in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of the costs to the activity cost pools.
-How much cost,in total should not be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision making?
A) $0.
B) $60,000.
C) $80,000.
D) $120,000.

Question

Davis Company uses an activity-based costing system in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity-based costing system:

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. You have been asked to complete the first-stage allocation of the costs to the activity cost pools.
-How much cost,in total should not be allocated to orders and products in the second stage of the allocation process if the activity-based costing system is used for internal decision making?
A) $0. 
B) $60,000. 
C) $80,000. 
D) $120,000.

Quizplus · Accepted Answer

The total of the overhead costs ($720,000) minus the total costs allocated to the three activity cost pools ($360,000) equals the cost that is not allocated to orders and products in the second stage of the allocation process. 
$720,000 - $360,000 = $360,000 not allocated 
However, $80,000 of this amount is for the "Other" activity cost pool, which consists of idle capacity and organization-sustaining costs. These costs are not related to any specific product or order and should not be allocated to them. Therefore, the amount that should not be allocated to orders and products in the second stage of the allocation process for internal decision making is:
$360,000 - $80,000 = $280,000
Therefore, the correct answer is C) $80,000.

Davis Company Uses an Activity-Based Costing System in Which There