Question:
EB7.
LO 6.3Rocks Industries has two products. They manufactured 12,539 units of product A and 8,254 units of product B. The data are:
Cost Pool Estimated Overhead Product A Product B
1 $32,400 1,500 3,000
2 $54,900 1,700 1,300
3 $51,385 1,390 1,000
What is the activity rate for each cost pool?
Answer:
Following two steps helps in finding the Activity Rate for each cost pool.
Step 1: Identify cost pools and their relevant cost drivers.
Cost Driver Estimated Overhead Product A Product B Total
1 $32,400 1,500 3,000 4,500
2 $54,900 1,700 1,300 3,000
3 $51,385 1,390 1,000 2,390
Step 2: Calculate Overhead rate for each activity
Overhead Rate= Cost pool / total units of relevant cost driver consumed
Now just put the values in the formula and compute overhead rate for each activity.
Overhead Rate for Cost Driver 1=$32,400 / 4,500 = $12.5 per cost driver 1
Overhead Rate for Cost Driver 2=$54,900 / 3,000 = $15.5 per cost driver 2
Overhead Rate for Cost Driver 3=$51,385 / 2,390 = $3.5 per cost driver 3