Homework Answers
Answer: Option 1 = $286,200
Calculation of overheads applied to Audit services under Activity Based Costing
Overhead applied to Audit services:
= (Number of CPU minutes used by audit service × activity rate per CPU minute) + (number of legal services uses by audit service × activity rate per legal hour)
= (40,000 CPU minutes × $6.36 per CPU minute) + (200 legal hours × $159 per legal hour)
= $254,400 + $31,800
= $286,200
Working note:
Calculation of activity rate for each activity centre
| Activity centre | Cost driver | Activity consumed by audit service | Activity consumed by tax service | Total activity consumed | Amount of overheads | Activity rate (Total overhead/Total activity consumed) |
| Computer support | CPU minutes | 40,000 | 10,000 | 50,000 | $318,000 | $6.36 |
| Legal support | Legal hours | 200 | 800 | 1,000 | $159,000 | $159 |
| Total | 477,000 |
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