Question

Adria 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:

Activity Cost Pool Activity Measure Expected Overhead Cost Expected Activity
Labor-related Direct labor-hours $75,000 7,500 DLHs
Purchase orders Number of orders $14,400 3,600 orders
Material receipts Number of receipts $14,400 900 receipts
Relay assembly Number of relays $31,200 2,600 relays
General factory Machine-hours $440,000 40,000 MHs


Required:

Compute the activity rate for each of the activity cost pools.

Answer 1

Cost allocation per Direct Labor Hours $ 10 per direct labor hour

Cost allocation per Purchase Order $ 4 per purchase order

Cost allocation per material receipts activity $ 16 per receipt

Cost allocation per relay assembly $ 12 per relay assembly

Cost allocation per machine hours $ 11 per machine hour

Step-by-step explanation:

Computation of activity rate for each activity cost

Labor Related Costs $ 75,000

Cost basis : Direct Labor Hours 7,500 hours

Cost allocation per Direct Labor Hours $ 10 per direct labor hour

Purchase Orders Activity cost $ 14,400

Cost basis: No of purchase orders 3.600 purchase orders

Cost allocation per Purchase Order $ 4 per purchase order

Cost of material receipts activity $ 14,400

Cost basis: No of material receipts 900 receipts

Cost allocation per material receipts activity $ 16 per receipt

Cost of relay assembly activity $ 31,200

Cost basis: No of relay assembly 2,600 relays

Cost allocation per relay assembly $ 12 per relay assembly

Cost of General factory $ 440,000

Cost basis: Machine hours 40,000 machine hours

Cost allocation per machine hours $ 11 per machine hour