Question

The following three activity cost pools are used by XYZ Company in it activity-based costing system:

Activity Cost Pool	Total Activity
Fabrication	50,000	machine-hours
Order processing	625	orders
Other	N/A

The Other activity cost pool is used to account for the costs of idle capacity and organization-sustaining costs.

The company has provided the following data about its costs:

Wages and salaries	$433,000
Depreciation	160,000
Occupancy	169,000
Total	$762,000

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

	Activity Cost Pools
	Fabrication	Order Processing	Other	Total
Wages and salaries	20%	70%	10%	100%
Depreciation	10%	30%	60%	100%
Occupancy	10%	70%	20%	100%

The activity rate for the Fabrication activity cost pool is:

Multiple Choice

• $1.99 per machine-hour

• $3.81 per machine-hour

• $0.39 per machine-hour

• $2.39 per machine-hour

Answer 1

*Option(D). $2.39 per Machine-hour.

Particulars	Total Cost Pool	Fabrication	Activity Cost
Wages and Salaries	$ 433,000	20%	$ 86,600
Depreciation	$ 160,000	10%	$ 16,000
Occupancy	$ 169,000	10%	$ 16,900
Total	$ 762,000		$ 119,500
Total Machine Hours			50,000 MH
Activity Rate			$ 2.39 per MH

*Activity Rate= Total Activity Cost / Total Machine Hours. =$119,500/50,000 = $2.39 per MH.

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