Question

Required information (The following information applies to the questions displayed below.) Rustafson Corporation is a diversified manufacturer of consumer goods. The company's activity-based costing system has the following seven activity cost pools: Activity Cost Pool Labor-related Machine-related Machine setups Production orders Product testing Packaging General factory Estimated Overhead Cost $ 16,400 $ 5,000 $ 20,500 $ 19,000 $ 21,700 $ 36,000 $ 53,600 Expected Activity 10,000 direct labor-hours 10,000 machine-hours 500 setups 500 orders 700 tests 3,600 packages 10,000 direct labor-hours Required: 1. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.) Activity Rate per DLH Der MH Activity Cost Pool Labor-related Machine-related Machine setups Production orders Product testing Packaging General factory per setup per order per test per package por DLH

Answer 1

Solution :

The formula for calculating the activity rate for a given activity pool is

= Estimated over head cost of the activity cost pool / Estimated activity of the activity pool

Applying the above formula to the data of the activity cost pools we have the activity rates calculated as follows :

Statement showing computation of activity rate for each activity cost pool

Sl.No.	Activity cost pool	Estimated Overhead cost	Expected Activity	Activity rate = Estimated Overhead cost / Expected Activity	Solution
	(1)	(2)	(3)	(4) = (2) / (3)
1	Labor – related	$ 16,400	10,000 direct labor hours	= $ 16,400 / 10,000 = $ 1.64	$ 1.64 per DLH
2	Machine – related	$   5,000	10,000 machine hours	= $ 5,000 / 10,000 = $ 0.50	$ 0.50 per MH
3	Machine setups	$ 20,500	500 setups	= $ 20,500 / 500 = $ 41.00	$ 41.00 per set up
4	Production orders	$ 19,000	500 orders	= $ 19,000 / 500 = $ 38.00	$ 38.00 per order
5	Product testing	$ 21,700	700 tests	= $ 21,700 / 700 = $ 31.00	$ 31.00 per test
6	Packaging	$ 36,000	3,600 packages	= $ 36,000 / 3,600 = $ 10.00	$ 10.00 per package
7	General Factory	$ 53,600	10,000 direct labor hours	= $ 53,600 / 10,000 = $ 5.36	$ 5.36 per DLH