Question

Rusties Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company�s five activity cost pools: Expected OverheadActivity Cost Pool Activity Measure Cost Expected ActivityLabor-related Direct labor-hours $ 18,000 2,000 DLHsPurchase orders Number of orders $ 1,050 525 ordersProduct testing Number of tests $ 3,500 350 testsTemplate etching Number of templates $ 700 28 templatesGeneral factory Machine-hours $ 50,000 10,000 MHsCompute the activity rate for each of the activity cost pools.

Answer 1

Labor-related= $9 per direct labor hour

Purchase orders= $2 per order

Product testing= $10 per number of test

Template etching= $25 per template

General factory= $5 per machine hour

Step-by-step explanation:

Giving the following information:

Activity - Cost Pool

Labor-related - Direct labor-hours: $18,000 - 2,000 DLHs

Purchase orders - Number of orders: $1,050 - 525 orders

Product testing - Number of tests: $3,500 - 350 tests

Template etching - Number of templates: $700 28 templates

General factory - Machine-hours: $50,000 - 10,000 MHs

For each activity, we need to calculate the estimated overhead rate to then allocate to each Job or product.

To calculate the estimated manufacturing overhead rate we need to use the following formula:

Estimated manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Labor-related= 18,000/2,000= $9 per direct labor hour

Purchase orders= 1,050/525= $2 per order

Product testing= 3,500/350= $10 per number of test

Template etching= 700/28= $25 per template

General factory= 50,000/10,000= $5 per machine hour