Wedd Corporation uses activity-based costing to assign overhead costs to product

Question

Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company's three activity cost pools as follows: Processing $44,400; Supervising, $32,800; and Other, $21,300. 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 appear below: Batches MHs (Processing) (Supervising) Product 06 Product D7 Total 16,800 970 17,770 800 660 1,460 The activity rate for the Processing activity cost pool under activity-based costing is closest to Multiple Choice $2.18 per MH $2.80 per MH $2.50 per MH $6.93 per MH

Explanation / Answer

SOLUTION

Activity rate for processing activity =  $2.50 per machine hour

Activity rate = Expected cost / Allocation base

Activity rate for processing activity = Expected cost / Machine hours

= $44,400 / 17,770 machine hours

= $2.50 per machine hour

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