Question

Exercise 04-4 Computing overhead rates under ABC LO P3 Xie Company identified the following activities, costs, and activity drivers for this year. The company manufactures two types of go-karts: Deluxe and Basic. Activity Expected Costs Expected Activity Handling materials $ 625,000 100,000 parts Inspecting product 900,000 1,500 batches Processing purchase orders 105,000 700 orders Paying suppliers 175,000 500 invoices Insuring the factory 300,000 40,000 square feet Designing packaging 75,000 2 models Required: Compute the activity rate for each activity, assuming the company uses activity-based costing. (Round activity rate answers to 2 decimal places.)

Answer 1

Answer and Explanation:

The computation of the activity rate for each activity is shown below:-

                      a                         b                             c   = a ÷ b

Particulars Expected Cost     Activity driver          Activity rate

Handling

material     $625,000              100,000                 $6.25 per part

Inspecting

product     $900,000                1,500                      $600 per batch

Processing

orders        $105,000                   700                        $150 per order

Paying

Supplies    $175,000                    500                       $350 per invoice

Insuring

factory       $300,000                   40,000                   $7.50 per sqft

Designing

packaging  $75,000                        2                         $37,500 per model

Total           $2,180,000

We simply divide the expected cost by the activity driver in order to find out the activity rate