Question

Adria Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:
Activity Cost Pool Activity Measure Expected Overhead Cost Expected Activity
Labor-related Direct labor-hours $75,000 7,500 DLHs
Purchase orders Number of orders $14,400 3,600 orders
Material receipts Number of receipts $14,400 900 receipts
Relay assembly Number of relays $31,200 2,600 relays
General factory Machine-hours $440,000 40,000 MHs


Required:

Compute the activity rate for each of the activity cost pools.

Answer 1

Answer:

Cost allocation per Direct Labor Hours                $ 10 per direct labor hour

Cost allocation per Purchase Order                          $ 4 per purchase order

Cost allocation per material receipts activity              $ 16 per receipt

Cost allocation per relay assembly                          $ 12 per relay assembly

Cost allocation per machine hours                            $ 11 per machine hour

Explanation:

Computation of activity rate for each activity cost

Labor Related Costs                                                 $ 75,000

Cost basis : Direct Labor Hours                                    7,500 hours

Cost allocation per Direct Labor Hours                  $ 10 per direct labor hour

Purchase Orders  Activity cost                                      $ 14,400

Cost basis: No of purchase orders                                 3.600 purchase orders

Cost allocation per  Purchase Order                        $ 4 per purchase order

Cost of material receipts activity                                 $ 14,400

Cost basis: No of material receipts                                    900 receipts

Cost allocation per material receipts activity              $ 16 per receipt

Cost of relay assembly activity                                          $ 31,200

Cost basis: No of relay assembly                                       2,600 relays

Cost allocation per relay assembly                          $ 12 per relay assembly

Cost of General factory                                                      $ 440,000

Cost basis: Machine hours                                            40,000 machine hours

Cost allocation per machine hours                            $ 11 per machine hour