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Owlet distractors inc. uses activity-based costing to determine product costs. Activity rates computed at the beginning...

Owlet distractors inc. uses activity-based costing to determine product costs. Activity rates computed at the beginning of the year are used to apply manufacturing overhead costs to products. The following data concerning its activity-based costing system has been provided. Estimated overhead and activity rates, at the beginning of the year were: Estimated Expected Activity cost pools Overhead cost Activity Machine related (Machine hours) $431,200 16,000 MHs Batch setup (setups) $661,500 21,000 setups General factory (direct labor-hours) $612,150 26,500 DLHs The actual activity for the year was: Actual activity for the year Activity cost pools Total Bulls-eye Stringers Machine related (machine-hours) 15,200 7,400 7,800 Batch setup (setups) 21,500 12,000 9,500 General factory (direct labor-hours) 26,000 10,000 16,000 The actual total manufacturing overhead cost incurred for the year was $1,820,700 The activity rate computed at the beginning of the year for the batch set-up activity cost pool is closest to: $34.20 $26.95 (wrong) $31.50 $23.10

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Answer #1

The activity rate computed at the beginning of the year for the batch set-up activity cost pool

The activity rate for the year for the batch set-up activity cost pool = Estimated overhead costs / The total number of setups

= $661,500 / 21,000 setups

= $31.50 per setups

“Hence, the activity rate for the year for the batch set-up activity cost pool will be $31.50”

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