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 $16,800 2,000 direct labor-hours
Machine-related $16,000 8,000 machine-hours
Machine setups $30,400 800 setups
Production orders $6,600 200 orders
Product testing $12,000 500 tests
Packaging $51,000 3,400 packages
General factory $55,600 2,000 direct labor-hours
1. Compute the activity rate for each activity cost pool.
2. Compute the company's pre-determined overhead rate, assuming that the company uses a single plantwide pre-determined overhead rate based on direct labor-hours.

Answer 1

The activity rate for each activity cost pool is calculated by dividing the estimated overhead cost by the expected activity. The pre-determined overhead rate, using direct labor-hours, is $36.20 per direct labor-hour.

Step-by-step explanation:

To compute the activity rate for each activity cost pool, we divide the Estimated Overhead Cost by the Expected Activity. Here are the calculations:

To compute the company's pre-determined overhead rate based on direct labor-hours, we combine all estimated overhead costs and divide by the total direct labor-hours:

Total Estimated Overhead = $16,800 (Labor-related) + $55,600 (General factory) = $72,400

Pre-determined Overhead Rate = Total Estimated Overhead / Total Direct Labor-Hours

Pre-determined Overhead Rate = $72,400 / 2,000 direct labor-hours = $36.20 per direct labor-hour

Answer 2

Results are below.

Step-by-step explanation:

To calculate the activity rate for each activity cost pool, we need to use the following formula on each activity:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Labor-related= 16,800/2,000= $8.4 per direct labor hour

Machine-related= 16,000/8,000= $2 per machine-hour

Machine setups= 30,400/800= $38 per setup

Production orders= 6,600/200= $33 per order

Product testing= 12,000/500= $24 per test

Packaging= 51,000/3,400= $15 per package

General factory= 55,600/2,000= $27.8 per direct labor-hour

Now, the plantwide predetermined factory overhead:

Total overhead= $188,400

Total direct labor hours= 2,000

Predetermined manufacturing overhead rate= 188,400/2,000

Predetermined manufacturing overhead rate= $94.2 per direct labor hour