Question

Anola Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:Cost Pool Estimated Cost Activity - Product A Activity - Product B Total ActivityActivity 1 $18,000 300 200 500Activity 2 $16,000 500 100 600Activity 3 $27,000 600 300 900The activity rate under the ABC system for Activity 3 is:

Answer 1

Anola Company

Activity 3 rate under the ABC System is:

$30 per activity

Step-by-step explanation:

a) Data and Calculations:

Cost Pool

Activity Estimated Cost Activity - Activity - Total

Product A Product B Activity

Activity 1 $18,000 300 200 500

Activity 2 $16,000 500 100 600

Activity 3 $27,000 600 300 900

Activity 3 rate = $27,000/900 = $30

b) The activity rate is the product of the estimated cost of the activity divided by the total activity under the activity cost pool.

c) Under ABC costing technique, costs are accumulated and allocated based on the volume of activity. This is to ensure that each cost unit is allocated a cost that measures with the level of activity for the unit. It eliminates arbitrary allocation of costs.