Question

A company anticipates the cost to heat the building will be $21,000. Product A takes up 500 square feet of space, while Product B takes up 200 square feet. The activity rate per product using activity-based costing would be which of the following?

a) $140 per square foot for Product A; $105 per square foot for Product B
b) $42 per square foot for Product A; $105 per square foot for Product B
c) $21 per square foot for Product A; $105 per square foot for Product B
d) $42 per square foot for Product A; $21 per square foot for Product B

Answer 1

The calculated activity rates for Product A are $21.43 per square foot, and for Product B, they are $8.57 per square foot, based on their respective square footage and the total cost to heat the building. None of the provided options are correct.

Step-by-step explanation:

To calculate the activity rate per product using activity-based costing, we should first determine the total space used by both products and then allocate the heating costs based on the proportion of the space each product uses. The total space used is 500 square feet for Product A and 200 square feet for Product B, giving us a combined total of 700 square feet. Therefore, the activity rate is calculated by dividing the total anticipated cost by the space occupied by each product.

Calculations:

• Total Heating Cost = $21,000
• Total space used = 500 sq ft (Product A) + 200 sq ft (Product B) = 700 sq ft.
• Activity rate for Product A = ($21,000 / 700 sq ft) × 500 sq ft = $15,000 / 700 sq ft = $21.43 per sq ft (rounded to two decimal places)
• Activity rate for Product B = ($21,000 / 700 sq ft) × 200 sq ft = $6,000 / 700 sq ft = $8.57 per sq ft (rounded to two decimal places)

These calculations show that none of the listed options are correct. The correct activity rates based on the provided information should be $21.43 per square foot for Product A and $8.57 per square foot for Product B.