Question

Exercise 04-4 Computing overhead rates under ABC LO P3 Xie Company identified the following activities, costs, and activity drivers for this year. The company manufactures two types of go-karts: Deluxe and Basic. Activity Expected Costs Expected Activity Handling materials $ 625,000 100,000 parts Inspecting product 900,000 1,500 batches Processing purchase orders 105,000 700 orders Paying suppliers 175,000 500 invoices Insuring the factory 300,000 40,000 square feet Designing packaging 75,000 2 models Required: Compute the activity rate for each activity, assuming the company uses activity-based costing. (Round activity rate answers to 2 decimal places.)

Answer 1

Answer and Explanation:

The computation of the activity rate for each activity is shown below:-

a b c = a ÷ b

Particulars Expected Cost Activity driver Activity rate

Handling

material $625,000 100,000 $6.25 per part

Inspecting

product $900,000 1,500 $600 per batch

Processing

orders $105,000 700 $150 per order

Paying

Supplies $175,000 500 $350 per invoice

Insuring

factory $300,000 40,000 $7.50 per sqft

Designing

packaging $75,000 2 $37,500 per model

Total $2,180,000

We simply divide the expected cost by the activity driver in order to find out the activity rate