Orzel Corporation has provided the following data concerning its overhead costs for the coming year: The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year: The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below: The activity rate for the Assembly activity cost pool is closest to:
A)$2.70 per labor-hour
B)$9.00 per labor-hour
C)$9.90 per labor-hour
D)$16.20 per labor-hour

Question

Orzel Corporation has provided the following data concerning its overhead costs for the coming year:  The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:  The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs. The distribution of resource consumption across activity cost pools is given below:  The activity rate for the Assembly activity cost pool is closest to:
A)$2.70 per labor-hour 
B)$9.00 per labor-hour 
C)$9.90 per labor-hour 
D)$16.20 per labor-hour

Quizplus · Accepted Answer

To calculate the activity rate, we need to divide the estimated cost for each activity cost pool by its estimated activity level.

Activity rate for the Setup activity cost pool: 
$140,000 / 4,000 setups = $35 per setup

Activity rate for the Assembly activity cost pool:
$480,000 / 48,000 labor-hours = $10 per labor-hour

Activity rate for the Other activity cost pool:
$180,000 (fixed cost) / N/A (no activity measure) = N/A

Therefore, the closest activity rate for the Assembly activity cost pool is $9.90 per labor-hour, option C.

Orzel Corporation Has Provided the Following Data Concerning Its Overhead