A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table: Which of the following statements is true regarding this company's activity rates?
A) The activity rate under the activity-based costing system for Activity 2 is $2.00.
B) The activity rate under the activity-based costing system for Activity 2 is $16.00.
C) The activity rate under the activity-based costing system for Activity 2 is $1.50.
D) The activity rate under the activity-based costing system for Activity 2 is $19.50.
E) The activity rate under the activity-based costing system for Activity 2 is $2.81.

Question

A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:  Which of the following statements is true regarding this company's activity rates?
A) The activity rate under the activity-based costing system for Activity 2 is $2.00. 
B) The activity rate under the activity-based costing system for Activity 2 is $16.00. 
C) The activity rate under the activity-based costing system for Activity 2 is $1.50. 
D) The activity rate under the activity-based costing system for Activity 2 is $19.50. 
E) The activity rate under the activity-based costing system for Activity 2 is $2.81.

Quizplus · Accepted Answer

To calculate the activity rate for each activity, we divide the total cost of each activity pool by the total activity for that pool. For Activity 2, the total cost is $300,000 and the total activity is 200,000. Therefore, the activity rate is $300,000/200,000 = $1.50.

A Company Uses Activity-Based Costing to Determine the Costs of Its