Frogge, Inc., manufactures and sells two products: Product H0 and Product N3. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: The direct labor rate is $23.60 per DLH. The direct materials cost per unit is $160.60 for Product H0 and $240.30 for Product N3. 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 Labor-Related activity cost pool under activity-based costing is closest to:
A)$55.31 per DLH
B)$29.40 per DLH
C)$779.89 per DLH
D)$46.09 per DLH

Question

Frogge, Inc., manufactures and sells two products: Product H0 and Product N3. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:  The direct labor rate is $23.60 per DLH. The direct materials cost per unit is $160.60 for Product H0 and $240.30 for Product N3. 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 Labor-Related activity cost pool under activity-based costing is closest to:
A)$55.31 per DLH 
B)$29.40 per DLH 
C)$779.89 per DLH 
D)$46.09 per DLH

Quizplus · Accepted Answer

The activity rate for each activity cost pool is calculated by dividing the total cost of the pool by the total expected activity for the pool.

For the Labor-Related activity cost pool, the total expected cost is $225,000 and the total expected activity is 7,650 DLHs. Dividing the cost by the activity gives an activity rate of $29.41 per DLH ($225,000 ÷ 7,650 DLHs).

Therefore, the closest answer is B) $29.40 per DLH.