Question

Rustafson Corporation is a diversified manufacturer of consumer goods. The company's activity-based costing system has the following seven activity cost pools:

Activity Cost Pool	Estimated Overhead Cost			Expected Activity
Labor-related	$	17,600		5,000	direct labor-hours
Machine-related	$	14,000		8,000	machine-hours
Machine setups	$	31,500		700	setups
Production orders	$	32,900		700	orders
Product testing	$	24,000		600	tests
Packaging	$	90,000		3,600	packages
General factory	$	50,000		5,000	direct labor-hours

Required:

1. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

	Activity Cost Pool Activity Rate Labor-related per DLH Machine-related per MH Machine setups per setup Production orders per order Product testing per test Packaging per package General factory    per DLH

Answer 1

Activity based concept states that costs should be recognized on the basis of activities which they can be traced back to and not specific blanket rate

Activity rates are computed by dividing estimated overhead cost by expected activity as given below

	1	2	1 divided by 2
Activity Cost Pool	Estimated overhead cost	Expected Activity	Activity rate
Labor-related	17,600	5000 direct labor hours	3.52 per DLH
Machine-related	14,000	8000 machine hours	1.75 per MH
Machine setups	31,500	700 setups	45 per setup
Production orders	32,900	700 orders	47 per order
Product testing	24,000	600 tests	40 per tests
Packaging	90,000	3600 packages	25 per package
General factory	50,000	5000 direct labor hours	10 per DLH