Question

The moving activity of Alpha Inc. has an expected cost of $200,000. Expected direct labor hours are 50,000, and the expected number of moves is 90,000. What is the best activity rate for moving

Answer 1

$2.22 per movement

Step-by-step explanation:

Activity-based costing is a form of absorption costing where overheads are charged to product using cost drivers. Under this method, overheads are first analyzed and categorized by the activities responsible for them and then charged to product based on the amount of benefits enjoyed using cost drivers.

Activity rate is calculated as:

Activity cost for the period / Total cost drivers for the period

Activity rate for the moving activity :

The appropriate cost driver to allocate moving activity is number of movements. This is so because it is most likely that the number of moves will be a major factor that influences the moving activity costs. Direct labour hours may not necessarily drive moving activity costs

So we can work out the rate as follows:

Activity rate per move = Total activity cost/ Total number of movements

= $200,000/ 90,000 moves

= $2.22 per movement