Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment depreciation and supervisory expense--to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below: Distribution of Resource Consumption Across Activity Cost Pools:
In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.Activity:
Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.Sales and Direct Cost Data:
The activity rate for the Machining activity cost pool under activity-based costing is closest to:
A) $1.50 per MH
B) $2.82 per MH
C) $4.80 per MH
D) $2.76 per MH

Question

Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment depreciation and supervisory expense--to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below:  Distribution of Resource Consumption Across Activity Cost Pools:
 In the second stage, Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products.Activity:
 Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.Sales and Direct Cost Data:
 The activity rate for the Machining activity cost pool under activity-based costing is closest to:
A) $1.50 per MH 
B) $2.82 per MH 
C) $4.80 per MH 
D) $2.76 per MH

Quizplus · Accepted Answer

To calculate the activity rate for the Machining activity cost pool, we need to divide the total cost of Machining activity pool by the total machine hours used in Machining activity pool. Therefore, the activity rate for Machining is:

Activity rate for Machining = Total cost of Machining activity pool/Total machine-hours used in Machining activity pool

Total cost of Machining activity pool = Equipment depreciation + Supervisory expense = $248,000 + $164,000 = $412,000

Total machine-hours used in Machining activity pool = 150,000 + 50,000 + 100,000 = 300,000

Activity rate for Machining = $412,000/300,000 MHs = $1.373 per MH

Therefore, the closest activity rate for Machining is $1.50 per MH (Option A).

Doede Corporation Uses Activity-Based Costing to Compute Product Margins