Question

Jennifer Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:
Estimated Expected Activity
Activity Cost Pools Overhead
Cost Product A Product B Total
Product design $23,500 400 100 500
Assembling $18,000 500 200 700
Supporting customers $34,600 600 300 900

The activity rate under the activity-based costing system for Supporting customers is closest to:
A. $36.24
B. $38.44
C. $84.56
D. $115.33

Answer 1

Answer:

B) = $38.44

Explanation:

Activity-based costing is a form of absorption costing where overheads are charged to product using cost drivers. Under this method, overheads are first analyzed and categorized by the activities responsible for them and then charged to product based on the amount of benefits enjoyed using cost drivers.

Activity rate is calculated as:

Activity cost for the period / Total cost drivers for the period

Activity rate for supporting customers:

The appropriate cost driver to allocate supporting customer activity is the number of customers as given.  This is so because it is most likely that the number of customers served will be a major factor that influences the supporting customers activity costs.

Activity rate for supporting customers

= Supporting customers overhead/total number of customers

= $34,600/(600+300)

= $38.44