Question

EB7.

Answer 1

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