Question

Adria Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:


Activity Cost Pool Activity Measure Expected Overhead Cost Expected Activity
Labor-related Direct labor-hours $66,500 9,500 DLHs
Purchase orders Number of orders $15,200 3,800 orders
Material receipts Number of receipts $10,200 850 receipts
Relay assembly Number of relays $28,000 2,800 relays
General factory Machine-hours $333,000 37,000 MHs

Required:
Compute the activity rate for each of the activity cost pools.

Answer 1

Answer:

Results are below.

Explanation:

To calculate the activity rate, we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Labor-related= 66,500/9,500= $7 per direct labor hour

Purchase orders= 15,200/3,800= $4 per order

Material receipts= 10,200/850= $12 per receipt

Relay assembly= 28,000/2,800= $10 per relay

General factory= 333,000/37,000= $9 per machine hour