Question

Latiker, Inc., manufactures and sells two products: Product Y9 and Product W0. 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 Y9 100 8 800
Product W0 100 10 1,000
Total direct labor-hours 1,800

The direct labor rate is $15.40 per DLH. The direct materials cost per unit for each product is given below:

Direct Materials Cost per Unit
Product Y9 $253.00
Product W0 $278.80

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:



Activity Cost Pools Activity Measures Overhead Cost Product Y9 Product W0 Total
Labor-related DLHs $61,488 800 1,000 1,800
Machine setups setups 50,687 400 300 700
Order size MHs 155,754 5,000 5,200 10,200
$267,929

The activity rate for the Machine Setups activity cost pool under activity-based costing is closest to:

a. $31.15 per setup
b. $26.27 per setup
c. $29.95 per setup
d. $72.41 per setup

Answer 1

Answer:

d. $72.41 per setup

Explanation:

The computation of the activity rate for the machine setup activity pool is as follows;

The Activity rate for the Machine setups activity cost pool is

= Estimated overhead cost ÷ Total machine setup

= $50,687 ÷ 700

= $72.41 per setups

Hence, the activity rate for the machine setup activity pool is $72.41 per setup

Therefore the option d is correct