Question

Data concerning three of the activity cost pools of Salcido LLC, a legal firm, have been provided below:

Activity Cost Pool	Total Cost		Total Activity
Researching legal issues	$	21,230	690	research hours
Meeting with clients	$	1,205,892	7,353	meeting hours
Preparing documents	$	92,590	5,790	documents

The activity rate for the “meeting with clients” activity cost pool is closest to:

Multiple Choice

$72 per meeting hour

$164 per meeting hour

$92 per meeting hour

$1,205,892 per meeting hour

Answer 1

Concepts and reason

Management accounting: Management accounting measures, analyses, and reports financial and nonfinancial information in taking decisions and implementing strategies. Various daily decisions are supported by management accounting. Some of the major uses include accepting potential order, making custom order bid, disposal of a product etc…

Fundamentals

Activity based costing: Overhead allocation under activity based costing is based on cost pools and activity driver. Cost pool divided by activity driver results in allocation rate. Based on the activity usage overhead is allocated using pre-determined allocation rate.

Activity rate is estimated activity cost pool amount divided by total activity. In the given case activity cost pool is “Meeting with clients” and total activity is meeting hours. Below is the formula used:

Activity rate is:

Thus, activity rate is

Ans:

Activity rate for the meeting with clients activity cost pool is $164 per meeting hour.