Question

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to five separate activity pools. The budgeted activity cost and activity base data by product are provided below. Activity Cost Activity Base Procurement $370,000 Number of purchase orders Scheduling 250,000 Number of production orders Materials handling 500,000 Number of moves Product development 730,000 Number of engineering changes Production 1,500,000 Machine hours Number of Purchase Orders Number of Production Orders Number of Moves Number of Engineering Changes Machine Hours Number of Units Disk drives 4,000 300 1,400 10 2,000 2,000 Tape drives 4,000 150 800 10 8,000 4,000 Wire drives 12,000 800 4,000 25 10,000 2,500
The activity rate for the procurement activity cost pool is:______.
a. $18.50 per purchase order
b. $15.42 per purchase order
c. $37.00 per purchase order
d. $43.53 per purchase order

Answer 1

Answer:

a. $18.50 per purchase order

Explanation:

The computation of the activity rate for the procurement activity cost pool is shown below:

Cost per Unit = Activity Cost ÷ Total of Activity Base

= $370,000 ÷ (4,000 + 4,000 + 12,000)

= $370,000 ÷ 20,000

= $18.50

Hence, the activity rate is $18.50 per purchase order