Question

atman Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication 10,000 machine-hours Order processing 800 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 $ 320,000 Depreciation 220,000 Occupancy 120,000 Total $ 660,000 The distribution of resource consumption across activity cost pools is given below: Activity Cost Pools Total Fabricating Order Processing Other Wages and salaries 20% 65% 15% 100% Depreciation 15% 35% 50% 100% Occupancy 5% 70% 25% 100% The activity rate for the Fabrication activity cost pool is closest to:

Answer 1

Answer:

Tatman Corporation

The activity rate for the Fabrication activity cost pool is closest to:

= $10.30 per machine hour.

Explanation:

a) Data and Calculations:

Activity Cost Pool  Total Activity

Fabrication                  10,000 machine-hours

Order processing            800 orders

Costs:

Wages and salaries $ 320,000

Depreciation               220,000

Occupancy                  120,000

Total                        $ 660,000

Resource consumption:

Activity Cost Pools      Fabricating    Order Processing  Other   Total

Wages and salaries              20%          65%                    15%     100%

Depreciation                          15%          35%                   50%     100%

Occupancy                             5%           70%                   25%     100%

Activity Cost Pools         Fabricating       Cost

Wages and salaries              20%        $64,000 (20% of $320,000)

Depreciation                          15%          33,000  (15% of $220,000)

Occupancy                             5%             6,000  (5% of $120,000)

Total cost for the Fabricating pool = $103,000

Machine hours = 10,000

Activity rate = $10.30 ($103,000/10,000)