Question

Chrzan, Inc., manufactures and sells two products: Product E0 and Product N0. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product E0 300 9.0 2,700 Product N0 1,000 8.0 8,000 Total direct labor-hours 10,700 The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Estimated Expected Activity Activity Cost Pools Activity Measures Overhead Cost Product E0 Product N0 Total Labor-related DLHs $ 296,390 2,700 8,000 10,700 Production orders orders 55,587 300 400 700 Order size MHs 579,866 5,000 4,700 9,700 $ 931,843 The activity rate for the Order Size activity cost pool under activity-based costing is closest to:_________-.
A. $59.78 per MH
B. $87.09 per MH
C. $44.16 per MH
D. $37.05 per MH

Answer 1

Answer:

A. $59.78 per MH

Explanation:

The computation of activity rate for the Order Size activity cost pool under activity-based costing is shown below:-

Activity rate for the Order Size activity cost pool = Activity pool cost ÷ Total expected activity

= $579,866 ÷ 9,700

= $59.78 per MH

Therefore for computing the activity rate for the Order Size activity cost we simply applied the above formula and ignore all other value as the other values are not relevant.