Explore BrainMass

Managerial Accounting - Activity Rate

Laguna Corporation has provided the following data concerning its overhead costs for the coming year:

Wages and salaries 260,000
Depreciation 100,000
Rent 180,000
Total 540,000

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 50,000 labor-hours
Order processing 400 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 60% 20% 20% 100%
Depreciation 5% 60% 35% 100%
Rent 30% 30% 40% 100%

The activity rate for the Order Processing activity cost pool is closest to:

405 per order
270 per order
415 per order
495 per order

Solution Summary

The solution explains how to calculate the activity rate for an activity in an activity based costing system.