Chrzan, Inc., manufactures and sells two products: Product E0 and Product N0.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs)required to produce that output appear below: The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: The activity rate for the General Factory activity cost pool under activity-based costing is closest to:
A)$44.16 per MH
B)$59.78 per MH
C)$87.09 per MH
D)$37.05 per MH

Question

Chrzan, Inc., manufactures and sells two products: Product E0 and Product N0.Data concerning the expected production of each product and the expected total direct labor-hours (DLHs)required to produce that output appear below:  The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:  The activity rate for the General Factory activity cost pool under activity-based costing is closest to:
A)$44.16 per MH 
B)$59.78 per MH 
C)$87.09 per MH 
D)$37.05 per MH

Quizplus · Accepted Answer

To determine the activity rate for each activity cost pool, we need to divide the total cost of the activity pool by the total expected activity level for that pool:

- General Factory: $1,109,400 / 18,550 MH = $59.78 per MH
- Machine Setup: $296,400 / 600 setups = $494 per setup
- Other Production: $267,000 / 3,350 orders = $79.70 per order
- Packaging and Shipping: $494,880 / 23,400 pounds = $21.12 per pound

Therefore, the activity rate for the General Factory activity cost pool under activity-based costing is closest to $59.78 per MH. Activity rate = Estimated overhead cost ÷ Total expected activity
= $579,866 ÷ 9,700 MHs = $59.78 per MH