Activity-based costing (ABC) is a costing method that provides managers with cost information for

Multiple Choice

• strategic and other decisions that potentially affect capacity and therefore "fixed" as well as variable costs.

• identifying relevant costs when choosing between alternatives.

• identifying the net present value of future cash flows associated with investment opportunities.

• preparing financial reports for external parties.

Assume a companys activity-based costing system includes three activities with the following activity rates:

Activity Cost Pool	Activity Rate
Travel	$ 2	per mile driven
Deliveries	$ 70	per delivery
Customer service	$ 22	per phone call

Two of the companys many customers include Customer A and Customer B. These two customers consumed the companys activities as follows:

	Total Expected Activity
	Customer A	Customer B
Travel (number of miles driven)	300	250
Deliveries (number of deliveries)	15	10
Customer service (number of phone calls)	20	12

How much cost would be assigned from the Deliveries activity to Customer B?

Multiple Choice

• $700

• $20

• $1,900

• $1,200

Assume a companys activity-based costing system includes three activities. The following information is available with respect to those activities:

Activity Cost Pool	Estimated Overhead Cost	Expected Activity
Travel	$ 136,000	100,000	miles driven
Deliveries	$ 110,000	2,200	customer deliveries
Customer service	$ 220,000	10,000	phone calls

What is the activity rate for the Travel activity?

Multiple Choice

• $1.36 per mile driven

• $0.14 per mile driven

• $1.14 per mile driven

• $13.60 per mile driven