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Question(s) / Instruction(s):

A company is considering implementing an activity-based costing system with the following three activity cost pools:

Activity Cost Pool             Total Activity

Fabrication                          10,000 machine-hours

Order processing             800 orders

Other                                    Not applicable

The Other activity cost pool will be used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs:

Wages and salaries          $320,000

Depreciation                      220,000

Occupancy                          120,000

Total                                      $660,000

The distribution of resource consumption across activity cost pools is given below:

                Activity Cost Pools

                                                Fabrication          Order Processing             Other    Total

Wages and salaries                          20%                        65%                        15%        100%

Depreciation                                      15%                        35%                        50%        100%

Occupancy                                          5%                          70%                        25%        100%

The activity rate for the Fabrication activity cost pool is closest to:

 a)           $3.30 per machine-hour

 b)           $13.20 per machine-hour

 c)           $10.30 Per machine-hour

 d)           $8.80 per machine-hour

 

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