Activity cost pool Machine setup Materials handling Machine depreciation Activity cost driver Number of setups Number...

Activity cost pool Machine setup Materials handling Machine depreciation Activity cost driver Number of setups Number of parts Machine hours (mh) Cost assigned to pool 260000 580000 600000 Standard product 60 setups 14000 parts 2 mh per product Custom product 40 setups 12000 parts 4mh per product the company produced 14 000 basic products and 10000 custom product. compute the activity overhead rate for each cost pool using ABC.

Expert Solution

(A) Cost statement:			No. of activity cost driver				Total no. of activity cost driver
			Standard Product		Custom Product
Activity cost pool	Activity cost driver	Cost assigned to pool
Machine setups	Number of setups	$ 2,60,000	60	Setups	40	Setups		100	Setups
Material handling	Nmber of parts	$ 5,80,000	14,000	parts	12,000	parts		26,000	parts
Machine depreciation	Machine hours(mh)	$ 6,00,000	2	mh	4	mh		6	mh


(B)
Activity overhead rate	=	Cost assigned to pool/Total no. of actiivty cost driver

Activity cost pool:
Machine setups	$ 2,60,000	/	100	Setups	=	$ 2,600.00	per	Setup
Material handling	$ 5,80,000	/	26,000	parts	=	$ 22.31	per	part
Machine depreciation	$ 6,00,000	/	6	mh	=	$1,00,000.00	per	mh


Thus, activity overhead rate for each cost pool using ABC:

Machine setups	$ 2,600.00	per	Setup
Material handling	$ 22.31	per	part
Machine depreciation	$ 1,00,000.00	per	mh

ekkarill92 answered 8 months ago

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