Managerial Accounting - Activity Rate
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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
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Solution Summary
The solution explains how to calculate the activity rate for an activity in an activity based costing system.
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