Question

Meester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

Overhead costs:

Equipment depreciation	$	83,100
Supervisory expense	$	2,300

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.50	0.20		0.30
Supervisory expense	0.50	0.10		0.40

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow:

Activity:

	MHs (Machining)	Orders (Order Filling)
Product M0	1,550	770
Product H2	9,010	2,250
Total	10,560	3,020

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

Answer 1

Solution:

First stage allocation of cost to activity cost pools
Particulars	Total Cost	Machining		Order Filling		Others
		%	Amount	%	Amount	%	Amount
Equipment Depreciation	$83,100.00	50%	$41,550.00	20%	$16,620.00	30%	$24,930.00
Supervisory Expense	$2,300.00	50%	$1,150.00	10%	$230.00	40%	$920.00
Total	$85,400.00		$42,700.00		$16,850.00		$25,850.00

Activity rate for the order filling activity = Totol cost of order filling activity / Nos of orders

= $16,850 / 3020 = $5.58 per order