Question

Umanzor 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, $50,500; Supervising, $28,600; and Other, $24,700. 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:

	MHs (Processing)	Batches (supervising)
Product S5	10,900	1,420
Product F5	890	510
Total	11,790	1,930

What is the overhead cost assigned to Product S5 under activity-based costing? (Round your intermediate calculations to 2 decimal places.)

a.$21,044.40

b. $67,696.40

c. $52,228.40

d. $46,652.00

Umanzor 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, $51,500; Supervising, $35,800; and Other, $26,600. 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:

	MHs (Processing)	Batches (supervising)
Product S5	15,300	1,060
Product F5	1,180	820
Total	16,480	1,880

The activity rate for the Processing activity cost pool under activity-based costing is closest to:

$2.81 per MH

$3.43 per MH

$3.13 per MH

$7.56 per MH

Answer 1

• All working forms part of the answer and clearly shown
• Requirement 1

Calculation of Activity Rate

			No. of activity drivers
Overheads	Amount (A)	Activity driver	Product S5	Product F5	Total no of drivers (B)	Activity rate (A/B)
Processing	50500	MHs	10900	890	11790	4.28
Supervising	28600	Batches	1420	510	1930	14.82
Other	24700	N/A	0	0	N/A

Calculation of cost assigned on the basis of above Activity Rate

Product S5
Cost	Rate per driver	No of driver	Cost assigned
Processing	4.28	10900	46652
Supervising	14.82	1420	21044.4
Other	0	0	0
Total cost assigned			67696.4

Hence, the correct answer is $67696.40 (OPTION – B)

• Requirement 2

Calculation of Activity rate

			No. of activity drivers
Overheads	Amount (A)	Activity driver	Product S5	Product F5	Total no of drivers (B)	Activity Rate (A/B)
Processing	51500	MHs	15300	1180	16480	3.125
Supervising	35800	Batches	1060	820	1880	19.04255
Other	26600	N/A	0	0	N/A

Since, the activity rate for PROCESSING is asked which is coming as $3.125 per MHs, the CORRECT ANSWER is OPTION – C $3.13 per MH as it is the closest to the figure calculated above.