Question

Leaper Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication 50,000 machine-hours Order processing 200 orders Other Not applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries $ 450,000 Depreciation 185,000 Occupancy 205,000 Total $ 840,000 The distribution of resource consumption across activity cost pools is given below: Activity Cost Pools Total Fabrication Order Processing Other Wages and salaries 35% 30% 35% 100% Depreciation 20% 50% 30% 100% Occupancy 35% 30% 35% 100% The activity rate for the Order Processing activity cost pool is closest to:_______.
A. $2,755 per order
B. $1,445 per order
C. $1,138 per order
D. $983 per order

Answer 1

Answer:

Order Processing= $1,445 per order

Explanation:

First, we need to calculate the estimated costs for processing:

Order Processing= (450,000*0.30) + (185,000*0.5) + (205,000*0.3)

Order Processing= $289,000

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Order Processing= 289,000 / 200

Order Processing= $1,445 per order