Question

Gwynnie Pie Company makes dessert pies for national fast food chains. Gwynnie Pie Company is considering using ABC costing and has the following activity cost pools and information available: Activities Estimated Overhead Costs Estimated Activity Material handling measured by batches $251,000 2,000 batches Mixing measured by batches $111.000 2,960 batches Packaging measured by units $78,000 1.950.000 units Maintenance measured by # of setups $15,000 260 setups Gwynnie Pie Company currently uses a plantwide overhead rate based on total estimated machine hours of 100,000 hours. Based on the above information, what would the activity cost allocation rate be for mixing? A. $125.50 per batch B. $37.50 per batch C. $4.55 per machine hour D. $0.04 per unit

Answer 1

Part 1

For mixing activity

Estimated overhead cost = $111,000

Estimated number of batches = 2,960

Activity cost allocated rate for mixing activity= Estimated overhead cost/ Estimated number of batches

= Estimated overhead cost / Estimated number of batches

= 111,000/2,960

= $37.50 per batch

Correct option is B.

Part 2

For material handling activity

Estimated overhead cost = $258,000

Estimated number of batches = 2,150

Activity cost allocated rate for material handling activity= Estimated overhead cost/ Estimated number of batches

= 258,000/2,150

= $120 per batch

Correct option is B.

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