Question

A company uses ABC costing to determine product costs for reporting purposes. At the beginning of the year management made the following cost and activity estimates in the company’s activity cost pools:

Activity Cost Pool             Activity measures            Estimated Overhead Cost             Expected Activity

Labour related                  Direct labour hours         $214,200                                              29.750 hours

Purchase orders               Number of orders            55,080                                                  765 orders

Product testing                 Number of tests                121,380                                                 1,200 tests

Template etching             Number of templates     321,300                                                 8,950 templates

General factory                 Machine hours                  892,500                                                 59,500 hours

Required: Compute the activity rate (ie predetermined overhead rate) for each of the activity cost pools.

Answer 1

Activity Rate = Estimated Overhead Cost/Expected Activity
Activity Cost Pool	Measure	Overhead cost	Expected Activity	Activity Rate
Labor Related	Direct labor hours	214200	29750	7.2	per hour
Purchase Orders	Number of Orders	55080	765	72	per order
Product Testing	Number of Tests	121380	1200	101.15	per test
Template Etching	Number of templates	321300	8950	35.89944134	per template
General Factory	Machine hours	892500	59500	15	per hour