Question

Provenzano Corporation manufactures two products: Product B56Z and Product D32N. The company is considering implementing an activity-based costing (ABC) system that allocates its manufacturing overhead to four cost pools. The following additional information is available for the company as a whole and for Products B56Z and D32N.
Activity Cost Pool Activity Measure Total Cost Total Activity
Machining Machine-hours $330,000 15,000 MHs
Machine setups Number of setups $50,000 100 setups
Product design Number of products $88,000 2 products
Order size Direct labor-hours $280,000 10,000 DLHs
Activity Measure Product B56Z Product D32N
Machine-hours 6,000 9,000
Number of setups 80 20
Number of products 1 1
Direct labor-hours 6,000 4,000
What is the activity rate for the Machining activity cost pool?
A) $500.00 per setup
B) $3.33 per setup
C) $2,500.00 per setup
D) $625.00 per setup

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Activity Cost Pool Activity Measure Total Cost Total Activity

Machining Machine-hours $330,000 15,000 MHs

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machinning:

Predetermined manufacturing overhead rate= 330,000 / 15,000

Predetermined manufacturing overhead rate= $22 per machine-hour

Machine setups:

Number of setups $50,000 100 setups

Predetermined manufacturing overhead rate= 50,000/100

Predetermined manufacturing overhead rate= $500 per set-up