Question

Schwering Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company's three activity cost pools as follows: Machining, $45,900; Order Filling, $90,000; and Other, $55,200. Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

	MHs (Machining)		Orders (Order Filling)
Product D7		8,910		1,920
Product U1		18,090		480

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

$79.63 per order

$11.10 per order

$37.50 per order

$27.10 per order

Answer 1

Order Filling overhead cost = $90,000

Product D7, orders (Order filling) = 1,920

Product U1. orders  (Order Filling) = 480

Total orders (Order filling) = Product D7, orders + Product U1. orders

= 1,920 + 480

= 2,400

The activity rate for the Order Filling activity cost pool under activity-based costing = Order Filling overhead cost/Total order (Order filling)

= 90,000/2,400

= $37.50 per order

Third option is the correct option.