Question

In: Accounting

2. A Plus Company uses activity-based costing to determine the costs of its three products: A,...

2.

A Plus Company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:

Budgeted Activity
Activity Cost Pool Budgeted Cost Product A Product B Product C
Activity 1 $ 70,000 6,000 9,000 20,000
Activity 2 $ 45,000 7,000 15,000 8,000
Activity 3 $ 82,000 2,500 1,000 1,625


Which of the following statements is true regarding this company's activity rates?

Multiple Choice

  • The activity rate under the activity-based costing system for Activity 2 is $2.81.

  • The activity rate under the activity-based costing system for Activity 2 is $16.00.

  • The activity rate under the activity-based costing system for Activity 2 is $19.50.

  • The activity rate under the activity-based costing system for Activity 2 is $1.50.

  • The activity rate under the activity-based costing system for Activity 2 is $2.00.

Solutions

Expert Solution

Correct answer-------The activity rate under the activity-based costing system for Activity 2 is $1.50.

Working

Calculation of Activity rates
Activity Cost Pool Activity driver Overhead Cost Expected Activity (B) Activity rate (A/B)
Activity 1 Number of Activity $         70,000.00 35,000 $            2.00 Per Activity
Activity 2 Number of Activity $         45,000.00 30000 $            1.50 Per Activity
Activity 3 Number of Activity $         82,000.00 5125 $          16.00 Per Activity

As it can be seen $16 per activity is rate for Activity 3 not 2 and $ 2 is rate for activity 1.


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