McCaskey Corporation uses an activitybased costing system wi

McCaskey Corporation uses an activity-based costing system with the following three activity cost pools:

      Activity Cost Pool            Total Activity

     Fabrication --------------- 40,000 machine hours

     Order processing -------- 500 order

     Other ---------------------- Not applicable

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs.

The company has provided the following data concerning its costs:

Wages and salaries -------- $420,000

Depreciation --------------- 100,000

Occupancy ------------------   120,000

Total -------------------------- $640,000

The distribution of resource consumption across activity cost pools is given below:

                                                             Activity Cost Pools

                                   Fabrication      Order Processing     Other    Total

Wages and salaries           5%                       80%               15%       100%

Depreciation                    15%                      45%               40%        100%

Occupancy                       25%                      50%               25%        100%

The activity rate for the Fabrication activity cost pool is closest to:

$1.65 per machine-hour

$4.00 per machine-hour

$0.80 per machine-hour

$2.40 per machine-hour

	a.	$1.65 per machine-hour
	b.	$4.00 per machine-hour
	c.	$0.80 per machine-hour
	d.	$2.40 per machine-hour

Solution

Calculation of activity rate for fabrication activity cost pool: Particulars Amount Wages and salaries (420000*0.05) 21000 Depreciation (100000*0.15) 15000 Occupancy(120000*0.25) 30000 Total overhead cost (21000+15000+30000) 66000 Machine hour 40000 Activity rate (66000/40000) 1.65 So answer is a)$1.65 per machine-hour