Question

furf, Inc., manufactures and sells two products Product Y1 and Product YO. Data ing the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Direct Labor- Expected Hours Per Total Direct Production Unit Labor-Hours Product Y1 300 6.0 1,800 Product YO 500 9.0 4,500 Total direct labor-hours 6,300 The direct labor rate is $27.50 per DLH. The direct materials cost per unit is $106.10 for Product Y1 and $168.40 for Product YO. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: Activity Cost Activity Estimated Overhead Pools Measures Cost Expected Activity Product Product Y YO Total Labor-related DLHS $ 151,263 1.800 4,500 6,300 Production orders orders 43,253 300 400 700 Order size MHs 863,478 4,900 5.000 9.900 $ 1,057,994 The activity rate for the Order Size activity cost pool under activity-based costing is closest to: A) $62.60 per MH B) $33.61 per MH C) $167.94 per MH D) $87.22 per MH

Answer 1

Answer D. $87.22 per MH

Since the total order size is $863,478 and the total expected activity is 9900 units (4900 Y1 & 5000 Y2)

So the activity rate = $863478/9900 units

                              = $87.22 per MH