Question

Martinez Cake Company sells birthday cakes and fruit cakes in bulk through its Internet business. Estimated overhead costs for the coming year total $330,000. The accountant for Martinez identified the following information in preparation for an activity-based costing system. Activity Allocation Base Overhead Cost Purchasing Number of purchase orders $82,500 Processing Number of units processed $198,000 Sales Number of sales orders $49,500 The estimated activity level for each type of cake and in total is as follows: Birthday Cakes Fruit Cakes Total Number of purchase orders 4,875 2,000 6,875 Number of units processed 20,000 4,750 24,750 Number of sales orders 3,950 1,000 4,950 What is the overhead rate for the purchasing activity?

Answer 1

overhead rate for the purchasing activity= $12 per Purchase order

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost	Expected Activity (B)	Activity rate (A/B)
Purchasing	Number of Purchase orders	$         82,500.00	6,875	$             12.00	Per Purchase orders