Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2300 units, while 1400 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $145,315. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools: The cost pool activity rate for Engineering Costs would be closest to (Round all answers to two decimal places.)
A)$12.53 per engineering hour.
B)$41.20 per engineering hour.
C)$17.70 per engineering hour.
D)$62.08 per engineering hour.

Question

Vandalay Industries manufactures two products: toasters and blenders. The annual production and sales of toasters is 2300 units, while 1400 units of blenders are produced and sold. The company has traditionally used direct labor hours to allocate its overhead to products. Toasters require 1.25 direct labor hours per unit, while blenders require 1 direct labor hours per unit. The total estimated overhead for the period is $145,315. The company is looking at the possibility of changing to an activity-based costing system for its products. If the company used an activity-based costing system, it would have the following three activity cost pools:  The cost pool activity rate for Engineering Costs would be closest to (Round all answers to two decimal places.)
A)$12.53 per engineering hour. 
B)$41.20 per engineering hour. 
C)$17.70 per engineering hour. 
D)$62.08 per engineering hour.

Quizplus · Accepted Answer

To calculate the activity cost pool rate for Engineering Costs, we need to first determine the total estimated cost for engineering activities. From the table provided, the total estimated cost for engineering activities is $182,250. We also need to determine the total estimated amount of the cost driver for engineering activities, which is engineering hours. From the table provided, the total estimated engineering hours is 4,415.

To calculate the activity cost pool rate, we divide the total estimated cost for engineering activities by the total estimated engineering hours:

$182,250 ÷ 4,415 = $41.20 per engineering hour

Therefore, the cost pool activity rate for Engineering Costs is $41.20 per engineering hour, which is closest to choice B.

Vandalay Industries Manufactures Two Products: Toasters and Blenders