Question

g Alphabet Co. uses activity-based costing. The company manufactures two products, Product A and Product B. There are three activity cost pools, with estimated costs and expected cost driver quantities as follows: Activity 1 cost pool has estimated overhead of $18,000. The expected cost driver quantity of Product A is 500 and Product B is 400. Activity 2 cost pool has estimated overhead of $21,000. The expected cost driver quantity is 1,000 for Product A and 500 for Product B. Activity 3 cost pool has estimated overhead of $32,000. The expected cost driver quantity is 300 for Product A and 200 for Product. What is the pool rate for Activity 1

Answer 1

Activity 1 rate driver= $20 per driver

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 per driver is calculated as:

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

Activity 1 overhead = $18,000

Total expected cost drivers for activity 1 = 500 +400 = 900

Overhead rate per cost driver

= $18,000/900 hours

= $20 per driver