Question

Gable Company uses three activity pools. Each pool has a cost driver. Information for Gable Company follows:

Machining:
Total cost of pool: $312,000
Cost driver: Number of machine hours
Estimated cost driver: 80,000
Designing Costs:
Total cost of pool: $73,600
Cost driver: Number of design hours
Estimated cost driver: 8,000
Setup Costs:
Total cost of pool: $71,600
Cost driver: Number of batches
Estimated cost driver: 500

Answer 1

Gable Company uses three activity pools with specific cost drivers to allocate costs: Machining (machine hours), Designing Costs (design hours), and Setup Costs (batches). The cost rates per unit of the cost drivers are $3.90 per machine hour, $9.20 per design hour, and $143.20 per batch.

Step-by-step explanation:

Gable Company uses three activity pools to allocate costs. Each pool has a specific cost driver associated with it. In this case, the Machining pool has a cost driver of Number of machine hours, the Designing Costs pool has a cost driver of Number of design hours, and the Setup Costs pool has a cost driver of Number of batches.

To allocate costs to each pool, Gable Company estimates the total cost driver for each pool. For example, the estimated number of machine hours is 80,000 for Machining pool. Then, the total cost of each pool is divided by the estimated cost driver to determine the cost rate per unit of the cost driver.

For Machining pool, the cost rate would be $312,000 / 80,000 = $3.90 per machine hour. Similarly, for Designing Costs pool, the cost rate would be $73,600 / 8,000 = $9.20 per design hour. And for Setup Costs pool, the cost rate would be $71,600 / 500 = $143.20 per batch.