Question

Bennette Corporation has provided the following data concerning its overhead costs for the coming year:

Wages and salaries	$	520,000
Depreciation		210,000
Rent		230,000
Total	$	960,000

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

Activity Cost Pool	Total Activity
Assembly	30,000	labor-hours
Order processing	500	orders
Other	Not applicable

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.

The distribution of resource consumption across activity cost pools is given below:

	Activity Cost Pools
	Assembly	Order Processing		Other	Total
Wages and salaries	40%	35%		25%	100%
Depreciation	20%	50%		30%	100%
Rent	40%	35%		25%	100%

The activity rate for the Order Processing activity cost pool is closest to:

Multiple Choice

• $725 per order

• $735 per order

• $745 per order

• $574 per order

Answer 1

Answer : B = $ 735 per order.

:: Order Processing expenses allocated

>> Wages and salaries = $ 520,000 * 35 %

>> Wages and salaries = $ 182,000.

>> Depreciation = $ 210,000 * 50 %

>> Depreciation = $ 105,000.

>> Rent = $ 230,000 * 35 %

>> Rent = $ 80,500.

>> Total Order processing expenses = $ 182,000 + $ 105,000 + $ 80,500

>> Total Order processing expenses = $ 367,500.

>> Order processing expenses per order = $ 367,500 / 500

>> Order processing expenses per order = $ 735