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Required information [The following information applies to the questions displayed below.] For many years, Thomson Company ma2. Management is considering using activity-based costing to assign manufacturing overhead cost to products. The activity-basDetermine the activity rate for each of the four activity cost pools. (Round your answers to 2 decimal places.) Activity Cost

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Answer #1

Solution:

1.Calculation of Activity rate for Activity Cost Pool – Maintaining Inventory :

The formula for calculating the Activity Rate is

= Estimated overhead cost of the Activity / Expected Activity measure

As per the information given in the question we have

Estimated overhead cost = Cost of the Activity of Maintaining Inventory = $ 540,000

Expected Activity measure = Number of Part Types = 3,000

Thus the Activity Rate is

= Cost of the Activity of Maintaining Inventory / Number of Part Types

= $ 540,000 / 3,000

= $ 180.00

Thus the Activity Rate is $ 180.00 per part type

2.Calculation of Activity rate for Activity Cost Pool – Processing purchase orders :

The formula for calculating the Activity Rate is

= Estimated overhead cost of the Activity / Expected Activity measure

As per the information given in the question we have

Estimated overhead cost = Cost of the Activity of Processing purchase orders = $ 100,000

Expected Activity measure = Number of Purchase orders = 2,000

Thus the Activity Rate is

= Cost of the Activity of Processing purchase orders / Number of Purchase orders

= $ 100,000 / 2,000

= $ 50.00

Thus the Activity Rate is $ 50.00 per Purchase Order

3.Calculation of Activity rate for Activity Cost Pool – Quality Control :

The formula for calculating the Activity Rate is

= Estimated overhead cost of the Activity / Expected Activity measure

As per the information given in the question we have

Estimated overhead cost = Cost of the Activity of Quality Control = $ 81,000

Expected Activity measure = Number of test runs = 4,050

Thus the Activity Rate is

= Cost of the Activity of Quality Control / Number of test runs

= $ 81,000 / 4,050

= $ 20.00

Thus the Activity Rate is $ 50.00 per test run

4.Calculation of Activity rate for Activity Cost Pool – Machine Related :

The formula for calculating the Activity Rate is

= Estimated overhead cost of the Activity / Expected Activity measure

As per the information given in the question we have

Estimated overhead cost = Cost of the Machine Related Activity = $ 335,000

Expected Activity measure = Number of Machine Hours = 10,000

Thus the Activity Rate is

= Cost of Machine Related Activity / Number of Machine hours

= $ 335,000 / 10,000

= $ 33.50

Thus the Activity Rate is $ 33.50 per Machine hour

Thus we have

Activity Cost Pool

Activity Rate

Maintaining inventory

$ 180.00

Per part type

Processing purchase orders

$ 50.00

Per order

Quality control

$ 20.00

Per test

Machine-related

$ 33.50

Per MH

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