The activity rate for inspecting is: A. $7,5000 per inspection hour B. $20 per i

Question

The activity rate for inspecting is:

A. $7,5000 per inspection hour

B. $20 per inspection hour

C. $12 per inspection hour

D. $10 per inspection hour

E. $8 per inspection hour

Oxley Machining Company has identified the following overhead activities, cost, and activity drivers for the coming year Activity Capacity Activity Setting u Expected Cost $60,000 $45,000 Activity Driver Number of setups 300 Inspection hours 4,500 Machine hours Number of parts50,000 18,000 Grindin Receiving The company produces several different machine widgets used by other manufacturers. Information on separate batches for two of these widgets are: Direct materials Direct labour Units complete No. of setups Ins Widget A $850 $600 100 Widget B $950 $600 50 pection hours Machine hours Parts used 20 20 30 40 The company's normal activity is 20,000 direct labour hours. Each batch uses 50 hours of direct labour. Upon investigation, you discover that Receiving employs one worker, who spends 80% of her time on the receiving activity and 20% of her time on inspecting products. Her salary is $40,000. Inspecting has taken into account the worker's salary but not Receiving. In addition, Receiving also uses a forklift, at a cost of $8,000 per year for amortization and fuel. The forklift is used only in receiving.

Explanation / Answer

The activity rate of inspecting will be equal to Expected cost of inspecting activity (i.e. $45,000) divided by its total activity capacity (i.e. total inspection hours of 4,500)

Activity rate of inspecting = Expected cost/Inspection hours

= $45,000/4,500 = $10 per inspection hour

Therefore the activity rate for inspecting is $10 per inspection hour.

Hence the correct option is D) $10 per inspection hour.

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