Question

Betterton Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs—equipment depreciation and supervisory expense-are allocated to three activity cost pools—Machining, Order Filling, and Other—based on resource consumption. Data to perform these allocations appear below: Overhead costs: Equipment depreciation $ 58,250 Supervisory expense $ 4,200 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment depreciation 0.50 0.30 0.20 Supervisory expense 0.10 0.40 0.50 In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product A8 3,100 600 Product K2 17,500 1,800 Total 20,600 2,400 The activity rate for the Machining activity cost pool under activity-based costing is closest to:

Answer 1

Answer:

Machining activity cost activity rate = $1.434 per hour

Explanation:

Total cost assigned to Machining Costs

Equipment Depreciation = $58,250 $\times$ Activity pool of 0.5

= $29,125

Supervisory Expense = $4,200 $\times$ Activity pool of 0.1 = $420

Total cost allocated to machining = $29,125 + $420 = $29,545

Total Machine Hours = Product A8 + Product K2 = 3,100 + 17,500 = 20,600

Rate per hour = $29,545/20,600 = $1.434 per hour.

Final Answer

Machining activity cost activity rate = $1.434 per hour