Question

Bennette Corporation has provided the following data concerning its overhead costs for the coming year:

Wages and salaries	$	440,000
Depreciation		170,000
Rent		190,000
Total	$	800,000

The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:

Activity Cost Pool	Total Activity
Assembly	30,000	labor-hours
Order processing	550	orders
Other	Not applicable

The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.

The distribution of resource consumption across activity cost pools is given below:

	Activity Cost Pools
	Assembly	Order Processing		Other	Total
Wages and salaries	45%	40%		15%	100%
Depreciation	10%	40%		50%	100%
Rent	30%	25%		45%	100%

The activity rate for the Order Processing activity cost pool is closest to:

Answer 1

Activity Rate = Total Overhead / Number of Orders

= $ 291,500 /550 Orders

= $ 530 Per order

Hence the correct answer is $ 530 per order.

Note :

	1. Overhead Cost	2. Order Processing	Cost Allocated (1.*2.)
Wages and salaries	440,000	40%	176,000
Depreciation	170,000	40%	68,000
Rent	190,000	25%	47,500
Total Cost			291,500