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Masteriza [31]
3 years ago
14

EB7.

Business
1 answer:
sesenic [268]3 years ago
8 0

Question:

EB7.

LO 6.3Rocks Industries has two products. They manufactured 12,539 units of product A and 8,254 units of product B. The data are:

Cost Pool               Estimated Overhead   Product A      Product B

1                                         $32,400                  1,500              3,000

2                                        $54,900                  1,700               1,300

3                                        $51,385                   1,390               1,000

What is the activity rate for each cost pool?

Answer:

Following two steps helps in finding the Activity Rate for each cost pool.

Step 1: Identify cost pools and their relevant cost drivers.

Cost Driver   Estimated Overhead    Product A      Product B       Total

       1                        $32,400                  1,500              3,000          4,500

       2                       $54,900                  1,700               1,300          3,000

       3                       $51,385                   1,390               1,000          2,390

Step 2: Calculate Overhead rate for each activity

Overhead Rate= Cost pool / total units of relevant cost driver consumed

Now just put the values in the formula and compute overhead rate for each activity.

Overhead Rate for Cost Driver 1=$32,400 / 4,500 = $12.5 per cost driver 1

Overhead Rate for Cost Driver 2=$54,900 / 3,000 = $15.5 per cost driver 2

Overhead Rate for Cost Driver 3=$51,385 / 2,390 = $3.5 per cost driver 3

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The question is reproduced in the table below for clarity                        

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Explanation:

<em>When a business is faced with a problem of shortage of a resource which can be used to produced more than one product type, to maximize the use of the resource , the business should allocate it for production purpose in  such a way that it maximizes the contribution per unit of the scare resource.</em>

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Coffee cakes                 $5/0.3 hour=        16.67                      2nd

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Step 2

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