Question

Potter & Weasley Company had the following activities, estimated indirect activity costs, and allocation bases:ActivitiesIndirect Activity CostsAllocation BaseAccount inquiry (hours)$86,4002,700Account billing (lines)$56,00032,000Account verification (accounts)$38,25025,500Correspondence (letters)$80,00010,000Potter & Weasley uses activity based costing.The above activities are used by Departments P and Q as follows:Department PDepartment QAccount inquiry (hours)400800Account billing (lines)10,0004,000Account verification (accounts)6,0007,000Correspondence (letters)1,0002,000What is the cost per driver unit for the account inquiry activity?A) $1.75B) $8.64C) $8.00D) $32.00

Answer 1

Answer:

D) $32.00

Explanation:

What is the cost per driver unit for the account inquiry activity?

$\frac{Activity\: Cost\: Pool}{Cost \: Driver}= Activity\:Rate$

We will distribute the total cost of the account inquiry activity over the cost driver which is, labor hours.

Account inquiry:  86,400 cost

amount of hours 2,700

cost per driver unit: 86,400 / 2,700 = 32.00

This will be the overhead charger per hour in concept of accounting inquiry