Question

Addleman Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment expense $ 73,000 Indirect labor $ 1,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Processing Supervising Other Equipment expense 0.20 0.10 0.70 Indirect labor 0.20 0.20 0.60 Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: Activity: MHs (Processing) Batches (Supervising) Product W3 7,600 100 Product H3 2,400 900 Total 10,000 1,000 Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins. Sales and Direct Cost Data: Product W3 Product H3 Sales (total) $ 159,500 $ 154,100 Direct materials (total) $ 66,300 $ 55,300 Direct labor (total) $ 77,800 $ 84,100 The activity rate for the Supervising activity cost pool under activity-based costing is closest to:

Answer 1

Answer:

Supervising activity rate= $7.5 per batch

Explanation:

First, we need to allocate costs to Supervising:

Supervising= 73,000*0.1 + 1,000*0.2= $7,500

To calculate the activity rate, we need to use the following formula:

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

Supervising activity rate= 7,500 / 1,000

Supervising activity rate= $7.5 per batch