Mussenden Corporation has an activity-based costing system with three activity c

Question

Mussenden Corporation has an activity-based costing system with three activity cost pools—Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow: Overhead costs: Equipment depreciation $ 91,920 Supervisory expense $ 2,790 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment depreciation 0.60 0.10 0.30 Supervisory expense 0.50 0.20 0.30 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 data for the company's two products follow: Activity: MHs (Machining) Orders (Order Filling) Product P4 4,680 390 Product S4 8,320 910 Total 13,000 1,300 The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

Explanation / Answer

STATEMENT SHOWING FIRST STAGE ALLOCATION OF COST TO ACTIVITY POOL BASIS OF TOTAL Machining Order Others APPORTION IN $ IN $ IN $ IN $ Equipment depreciation 0.60:0.10:0.30 91,920 55,152 9,192 27,576 Supervisory expense 0.50:0.20:0.30 2,790 1,395 558 837 TOTAL COST OF ACTIVITY 94,710 56,547 9,750 28,413 STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Machining MHs 56,547 13,000 4.35 Order Filling order 9,750 1,300 7.50 Activity rate of order filling activity is $ 7.50 per order

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