Wake Construction
Wake Construction manufactures and installs standard and custom-made cabinetry for residential homes. Last year, the company incurred $200 000 in overhead costs. After implementing activity-based costing (ABC), the company’s accountant identified the following related information:

\begin{array}{l}\begin{array} { l l c } &&\text { Proportion }\\\text { Activity } & \text { Allocation Base } & \text { of Overhead Cost } \\\hline \text { Material delivery and handling } & \text { Number of deliveries } & 30 \% \\\text { Inspections } & \text { Number of inspections } & 25 \% \\\text { Supervision } & \text { Hours of supervisor time } & 20 \% \\\text { Purchasing } & \text { Number of purchase orders } & 25 \%\end{array}\end{array}

The number of activities for standard and custom-made cabinets is as follows:

\begin{array}{lrr}&\underline{\text { Standard }} &\underline{\text { Custom-made }} \\\text {Number of deliveries }&200 & 100 \\\text {Number of inspections }&600 & 400 \\\text {Hours of supervisor time }&1800 & 2200 \\\text {Number of purchase orders}&1000 & 1000\end{array}

During the past year, Wake accepted a customer order for a set of custom-made cabinets that would require the following:

\begin{array}{lr}\text { Direct labour cost ( } 25 \text { hours at } \$ 15 \text { per hour) } & \$ 75 \\\text { Direct materials (wood) ( } 900 \mathrm{ft} \text { at } \$ 3.00 \text { per foot) } & \$ 2700 \\\text { Number of deliveries } & 3 \\\text { Number of inspections } & 5 \\\text { Hours of supervisor time } & 3\end{array}

-How much overhead should be applied to the above customer order?
A) $4050
B) $ 285
C) $3360
D) $ 975

Which of the Following Is False Regarding Activity-Based Costing (ABC)

Multiple Choice

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