Assume that activity cost is $93,000, predetermined total overhead is $120,000, actual overhead is $98,000, and the company has three product lines, the activity rate is
A)$32,667 per product line.
B)$31,000 per product line.
C)$40,000 per product line.
D)$50,000 per product line.

Question

Quizplus · Accepted Answer

The formula to calculate activity rate is:

Activity rate = Predetermined total overhead / Total activity cost

Using the given values, we can calculate the activity rate as:

Activity rate = $120,000 / $93,000 = $1.29 per dollar of activity

To calculate the activity rate per product line, we need to divide the total activity cost by the number of product lines. Since we are not given the number of product lines, we cannot calculate the activity rate per product line directly.

However, we can use the actual overhead to estimate the number of product lines. If the actual overhead is less than the predetermined total overhead, it means that the company produced fewer product lines than expected. If the actual overhead is higher than the predetermined total overhead, it means that the company produced more product lines than expected.

In this case, the actual overhead is $98,000, which is less than the predetermined total overhead of $120,000. This suggests that the company produced fewer product lines than expected.

To estimate the number of product lines, we can use the formula:

Number of product lines = Actual overhead / Activity rate

Substituting the values, we get:

Number of product lines = $98,000 / $1.29 = 76,000

This means that the company produced products worth $76,000. Since we know that the company has three product lines, we can calculate the activity rate per product line as:

Activity rate per product line = Total activity cost / Number of product lines / Number of product lines

Substituting the values, we get:

Activity rate per product line = $93,000 / 76,000 / 3 = $1.29

Therefore, the activity rate per product line is $1.29 or $31,000 ($1.29 x 24,000 units) per product line. The best choice is B.

Assume That Activity Cost Is $93,000, Predetermined Total Overhead Is