Question

Hochberg Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication 50,000 machine-hours Order processing 625 orders Other Not applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries $ 433,000 Depreciation 160,000 Occupancy 169,000 Total $ 762,000 The distribution of resource consumption across activity cost pools is given below: Activity Cost Pools Fabricating Order Processing Other Total Wages and salaries 20% 70% 10% 100% Depreciation 10% 30% 60% 100% Occupancy 10% 70% 20% 100% The activity rate for the Fabrication activity cost pool is closest to:

Answer 1

Answer:

The correct answer is 2.39

Explanation:

TOTAL WAGES AND SALARIES = $433,000

DEPRECIATION  = $160,000

OCCUPANCY = $169,000

TOTAL  = $762,000

here for calculating the activity rate for activity cost pool , we will only use the given percentages of wages and salaries, depreciation and occupancy in the activity cost pool -

                         Amount            Activity cost pool              Amount allocated

Wages             $433,000                     20%                            $86,600  

Depreciation   $160,000                      10%                             $16,000

Occupancy      $169,000                      10%                             $16,900

TOTAL                                                                                       $119,500

Cost driver machine hours                                                       50,000

Rate per machine hour                                                        $119,500 / 50,000

                                                                                                    2.39

Therefore the activity rate for activity cost pool is 2.39