Addleman Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:
Overhead costs: | |||||||
Equipment expense | $ | 73,000 | |||||
Indirect labor | $ | 1,000 | |||||
Distribution of Resource Consumption Across Activity Cost Pools:
Activity Cost Pools | |||||
Processing | Supervising | Other | |||
Equipment expense | 0.20 | 0.10 | 0.70 | ||
Indirect labor | 0.20 | 0.20 | 0.60 | ||
Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow:
Activity:
MHs (Processing) | Batches (Supervising) | |
Product W3 | 7,600 | 100 |
Product H3 | 2,400 | 900 |
Total | 10,000 | 1,000 |
Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.
Sales and Direct Cost Data:
Product W3 | Product H3 | |||||||||
Sales (total) | $ | 159,500 | $ | 154,100 | ||||||
Direct materials (total) | $ | 66,300 | $ | 55,300 | ||||||
Direct labor (total) | $ | 77,800 | $ | 84,100 | ||||||
The activity rate for the Supervising activity cost pool under activity-based costing is closest to:
Garrison 16e Rechecks 2018-07-24
Multiple Choice
$1.00 per batch
$1.11 per batch
$7.50 per batch
$74.00 per batch
Correct answer--------------$7.50 per batch
Working
Calculation of Activity rates | |||||
Activity Cost Pool | Activity driver | Overhead Cost (A) | Expected Activity (B) | Activity rate (A/B) | |
Supervising | Number of Batches | $ 7,500.00 | 1000 | $ 7.50 | Per Batch |
.
Total Cost assigned to Supervising | |
10% of Equipment expense | $ 7,300.00 |
20% of indirect labor | $ 200.00 |
Total Cost assigned to Supervising | $ 7,500.00 |
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