Question

Spud, Inc. a manufacturer of gourmet potato chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2020. Activity Cost Pools Estimated Overhead Estimated Use of Cost Drivers per Activity Ordering and receiving $95,953 14,300 orders Food processing 497,150 61,000 machine hours Packaging 1,680,210 441,000 labor hours For 2020, the company had 10,100 orders and used 50,600 machine hours, and labor hours totaled 494,000. Calculate the overhead rates tor each activity.

Answer 1

Ordering and receiving= $6.71 per labour hour

Food processing= $8.15 per machine hour

Packaging =$3.81 per labour hour

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

Ordering and receiving

= $95,953 /14,300 orders= $6.71 per order

Food processing =

$497,150/61,000 machine hours= $8.15 per machine hour

Packaging $1,680,210/441,000 labor hours= $3.81 per labour hour