Bennette Corporation has provided the following data concerning its overhead costs for the coming year:
| Wages and salaries | $ | 440,000 | |||||
| Depreciation | 170,000 | ||||||
| Rent | 190,000 | ||||||
| Total | $ | 800,000 | |||||
The company has an activity-based costing system with the following three activity cost pools and estimated activity for the coming year:
| Activity Cost Pool | Total Activity | ||||||
| Assembly | 30,000 | labor-hours | |||||
| Order processing | 550 | orders | |||||
| Other | Not applicable | ||||||
The Other activity cost pool does not have a measure of activity; it is used to accumulate costs of idle capacity and organization-sustaining costs.
The distribution of resource consumption across activity cost pools is given below:
| Activity Cost Pools | |||||
| Assembly | Order Processing | Other | Total | ||
| Wages and salaries | 45% | 40% | 15% | 100% | |
| Depreciation | 10% | 40% | 50% | 100% | |
| Rent | 30% | 25% | 45% | 100% | |
The activity rate for the Order Processing activity cost pool is closest to:
Activity Rate = Total Overhead / Number of Orders
= $ 291,500 /550 Orders
= $ 530 Per order
Hence the correct answer is $ 530 per order.
Note :
| 1. Overhead Cost | 2. Order Processing | Cost Allocated (1.*2.) | |
| Wages and salaries | 440,000 | 40% | 176,000 |
| Depreciation | 170,000 | 40% | 68,000 |
| Rent | 190,000 | 25% | 47,500 |
| Total Cost | 291,500 |
Bennette Corporation has provided the following data concerning its overhead costs for the coming year: ...