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 $31,200 5,000 direct labor-hours
Machine-related $1,250 5,000 machine-hours
Machine setups $36,000 1,200 setups
Production orders $18,000 500 orders
Product testing $22,000 1,100 tests
Packaging $42,900 3,900 packages
General factory $56,000 5,000 direct labor-hours

Required:
a. Compute the activity rate for each activity cost pool.
b. Compute the company's predetermined overhead rate, assuming that the company uses a single plantwide predetermined overhead rate based on direct labor-hours.

Answer 1

Answer and Explanation:

a. The computation of activity rate for each activity cost pool is shown below:-

Activity cost Estimated Expected Activity

pool overhead Activity Rate

cost

a b a ÷ b

Labor-related $31,200 5,000 $6.24

Machine-related $1,250 5,000 $0.25

Machine setups $36,000 1,200 $30

Production orders $18,000 500 $36

Product testing $22,000 1,100 $20

Packaging $42,900 3,900 $11

General factory $56,000 5,000 $11.2

Total $207,350

b. The computation of company's predetermined overhead rate is shown below:-

Company's predetermined overhead rate = Total estimated overhead cost ÷ Total expected direct labor hours

= $207,350 ÷ 5,000

= $41.47