Question

Ollivier 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	$90,000
Indirect labor	$14,600

Distribution of Resource Consumption Across Activity Cost Pools:
	Activity Cost Pools
	Processing	Supervising	Other
Equipment expense	0.30	0.60	0.10
Indirect labor	0.30	0.50	0.20

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 C4	9,400	570
Product L7	1,900	570
Total	11,300	1,140

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

$24.54 per batch

$53.77 per batch

$49.07 per batch

$91.75 per batch

Answer 1

Calculation of The activity rate for the Supervising activity cost pool under activity-based costing
Step 1
Allocation of overhead costs to Supervising activity
Overhead cost	Cost allocated to supervising activity
Equipment expense ($90000 * 0.60)	$54,000.00
Indirect Labour ($14600 *0.50)	$7,300.00
Total cost allocated to supervising activity	$61,300.00
Step 2
Activity rate of Supervising activity cost pool = Total cost allocated to supervising activity / Total no.of batches
Activity rate of Supervising activity cost pool = $61,300 / 1140 batches = $53.77 per batch
The activity rate for the Supervising activity cost pool under activity-based costing is closest to: $53.77