Using ABC, what is the Materials Handling cost allocation to the Deluxe product line?

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BlackTom AI · Accepted Answer

Question restatement: Using Activity-Based Costing (ABC), what is the Materials Handling cost allocation to the Deluxe product line? The answer options provided are: 27,884; 656,890; 533,333; 369.231; 378,800; 43,128.

Option 1: 27,884
- This value is relatively small compared to the other numbers. In an ABC context, materials handling costs are typically allocated based on a specific driver (such as weight, number of moves, or material handling hours). If the Deluxe line uses a modest portion of the driver activity, this could be plausible, but without knowing the actual driver consumption, this seems like a scenario where Deluxe is not the primary user of handling activities. This might be too low if Deluxe is a major product line.

Option 2: 656,890
- This is a large allocation. Such a high figure would suggest Deluxe consumes a disproportionately large share of the materials handling activities. If the driver data show Deluxe is the primary user of handling resources or if the total materials handling cost is spread heavily toward Deluxe due to high activity volumes, this could be plausible. Without driver counts, it could also be an outlier in the data.

Option 3: 533,333
- This number sits between the previous two extremes. It could reflect a moderate to high allocation, implying Deluxe uses a substantial portion of handling activities, but not the entire or dominant share. It might be consistent with a scenario where Deluxe has a meaningful but not overwhelming activity footprint.

Option 4: 369.231
- This value appears to be a much smaller, perhaps unit-based or per-unit allocation figure. If the ABC model uses a per-unit driver (for example, cost per unit of Deluxe product produced) or a scaled allocation that results in a relatively precise decimal amount, this could be the correct figure, especially if Deluxe’s activity volume is modest or if the cost base is shared across many products and Deluxe represents a small share.

Option 5: 378,800
- Similar in magnitude to option 3, this suggests a substantial allocation. The difference between 378,800 and 533,333 would depend on the chosen driver and the exact activity consumption by Deluxe. If Deluxe is a major consumer of materials handling, this could be a reasonable figure, but it would require supporting driver data.

Option 6: 43,128
- This is another relatively small figure, but larger than Option 1’s 27,884 in relative terms. Depending on the scale of total materials handling costs, 43,128 could reflect a modest allocation to Deluxe if its activity share is small or if the driver base for Deluxe is limited.

Key considerations across all options:
- In ABC, the allocation is driven by the activity measures (driver units) that reflect how much of the handling resource each product line consumes. Without the actual driver counts (e.g., moves, set-ups, weight, handling hours) and the total cost, it’s not possible to recalculate the allocation from scratch.
- The numbers differ widely, indicating different interpretations of driver intensity or different total cost bases. A correct ABC allocation should be proportional to the Deluxe line’s usage of the material handling activities, not arbitrary.
- If the provided correct answer value (from the problem data you’re studying) is 369.231, that suggests the model uses a precise, possibly per-unit or per-assembly cost metric that yields a decimal result. This often indicates a cost-per-driver unit multiplied by the Deluxe driver usage.

What would validate the 369.231 figure in practice?
- Confirm the materials handling total cost allocated to all lines and the chosen driver for materials handling (e.g., number of moves, weight-ton equivalents, or hours).
- Check the Deluxe line’s usage of that driver (e.g., how many material moves or handling hours are attributed to Deluxe).
- Compute Deluxe allocation as: (Deluxe driver usage) × (cost per driver unit). If that product equals 369.231, then the figure is consistent with the ABC model.

Notes on incorrect-answer tendencies:
- Extremely high figures like 656,890 or 533,333 usually imply a scenario where Deluxe is the dominant user of the activity or where the cost base is misapplied (for example, using total costs without proportioning by the correct driver).
- Very low figures such as 27,884 or 43,128 could be valid in cases where Deluxe consumes only a tiny fraction of the materials handling activity or where the costs are allocated after a large pool is distributed among many lines.
- Decimal figures (like 369.231) often arise when cost-per-driver-unit is multiplied by a relatively small driver usage, yielding a precise, non-rounded allocation.

ACCTMIS 3300 AU2025 (2004) Midterm 2

Using ABC, what is the Materials Handling cost allocation to the Deluxe product line?

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