Question

Millner Corporation has provided the following data from its activity-based costing accounting system: Activity Cost Pool Total Cost Total Activity Designing products $ 1,372,448 7,798 product design hours Setting up batches $ 33,300 740 batch set-ups Assembling products $ 126,160 6,640 assembly hours The activity rate for the "designing products" activity cost pool is closest to:

Answer 1

Answer:

Activity rate = $176  per hour

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 per driver is calculated as:  

Activity overhead for the period / Total cost drivers for the period   Designing products activity cost pool= designing cost /product design hours

        = $1372,448/7,798 hours

       = $176  per hour