Answer:
Rustafson Corporation
1. Computation of the activity rate for each activity cost pool:
Activity Cost Pool Activity Rate
Labor-related $6.50 per DLH
Machine-related $0.25 per MH
Machine setups $42 per setup
Production orders $36 per order
Product testing $24 per test
Packaging $15 per package
General factory $13.60 per DLH
2. Computation of the predetermined overhead rate:
Predetermined overhead rate = Total overhead divided by total direct labor hours
= $358,800/8,000
= $44.85
Explanation:
a) Data and Calculations:
Estimated Overhead Cost Expected Activity Activity Rate
Labor-related $ 52,000 8,000 direct labor-hours $6.50 (52,000/8,000)
Machine-related $ 15,000 20,000 machine-hours $0.25 ($15,000/20,000)
Machine setups $ 42,000 1,000 setups $42 ($42,000/1,000)
Production orders $ 18,000 500 orders $36 ($18,000/500)
Product testing $ 48,000 2,000 tests $24 ($48,000/2,000)
Packaging $ 75,000 5,000 packages $15 ($75,000/5,000)
General factory $ 108,800 8,000 direct labor-hours $13.60 ($108,800/8,000)
Total overhead = $358,800
Total direct labor hours = 8,000 DLH
Predetermined overhead rate = Total overhead divided by total direct labor hours
= $358,800/8,000
= $44.85
