Arial Company has two products: A and B. The company uses activity-based costing. The total cost and activity for each of the company's three activity cost pools are as follows: The activity rate under the activity-based costing system for Activity 3 is closest to:
A) $28.87
B) $19.47
C) $58.40
D) $32.55
E) $70.45

Question

Arial Company has two products: A and B. The company uses activity-based costing. The total cost and activity for each of the company's three activity cost pools are as follows:  The activity rate under the activity-based costing system for Activity 3 is closest to:
A) $28.87 
B) $19.47 
C) $58.40 
D) $32.55 
E) $70.45

Quizplus · Accepted Answer

To calculate the activity rate for Activity 3, we need to divide the total cost of Activity 3 by the total activity for Activity 3.
Total activity for Activity 3 = 10,000 
Activity rate for Activity 3 = ($150,000 - $122,000) / 10,000
= $28,000 / 10,000
= $2.80 per unit of activity
Since each unit of activity for Activity 3 represents 17 labor hours, the activity rate for Activity 3 can also be expressed as:
= $2.80 / 17
= $0.1647 per labor hour
To apply this rate to Product A, we multiply it by the number of labor hours required for Product A:
= $0.1647 x 210
= $34.62
To apply this rate to Product B, we multiply it by the number of labor hours required for Product B:
= $0.1647 x 70
= $11.53
The total cost assigned to Product A for Activity 3 is therefore $34.62, and the total cost assigned to Product B for Activity 3 is $11.53. 
So, the activity rate under the activity-based costing system for Activity 3 is closest to $19.47 (rounded to two decimal places). Therefore, the answer is B.

Arial Company Has Two Products: a and B