Question

Privott, Inc., manufactures and sells two products: Product Z9 and Product N0. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: EstimatedExpected ActivityActivity Cost PoolsActivity MeasuresOverhead CostProduct Z9Product N0TotalLabor-relatedDLHs$324,0186,4003,0009,400Product testingtests 45,747400500900Order sizeMHs 471,1084,0004,3008,300 $840,873 The activity rate for the Labor-Related activity cost pool under activity-based costing is closest to:____________

A. $91.49 per DLH
B. $934.30 per DLH
C. $34.47 per DLH
D. $114.37 per DLH

Answer 1

Activity rate per labour hour= $34.47 per 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

In this question, the appropriate cost driver is direct labour hours

= $324,018/(6,400 +3,000) labour hours

= $324,018/9000 labour hours =

= $34.47 per hour