Question

Rustafson Corporation is a diversified manufacturer of consumer goods. The company's activity-based costing system has the following seven activity cost pools

Activity Cost Pool
Estimated
Overhead Cost
Expected Activity
Labor-related $ 52,000 8,000 direct labor-hours
Machine-related $ 15,000 20,000 machine-hours
Machine setups $ 42,000 1,000 setups
Production orders $ 18,000 500 orders
Product testing $ 48,000 2,000 tests
Packaging $ 75,000 5,000 packages
General factory $ 108,800 8,000 direct labor-hours

Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)
Activity Cost Pool Activity Rate
Labor-related $ per DLH
Machine-related $ per MH
Machine setups $ per setup
Production orders $ per order
Product testing $ per test
Packaging $ per package
General factory $ per DLH

Compute the company's predetermined overhead rate, assuming that the company uses a single plantwide predetermined overhead rate based on direct labor-hours. (Round your answer to 2 decimal places.)
Predetermined overhead rate $ per DLH

Answer 1

Rustafson Corporation

1. Computation of the activity rate for each activity cost pool:

Activity Cost Pool Activity Rate

Labor-related $6.50 per DLH

Machine-related $0.25 per MH

Machine setups $42 per setup

Production orders $36 per order

Product testing $24 per test

Packaging $15 per package

General factory $13.60 per DLH

2. Computation of the predetermined overhead rate:

Predetermined overhead rate = Total overhead divided by total direct labor hours

= $358,800/8,000

= $44.85

Step-by-step explanation:

a) Data and Calculations:

Estimated Overhead Cost Expected Activity Activity Rate

Labor-related $ 52,000 8,000 direct labor-hours $6.50 (52,000/8,000)

Machine-related $ 15,000 20,000 machine-hours $0.25 ($15,000/20,000)

Machine setups $ 42,000 1,000 setups $42 ($42,000/1,000)

Production orders $ 18,000 500 orders $36 ($18,000/500)

Product testing $ 48,000 2,000 tests $24 ($48,000/2,000)

Packaging $ 75,000 5,000 packages $15 ($75,000/5,000)

General factory $ 108,800 8,000 direct labor-hours $13.60 ($108,800/8,000)

Total overhead = $358,800

Total direct labor hours = 8,000 DLH

Predetermined overhead rate = Total overhead divided by total direct labor hours

= $358,800/8,000

= $44.85