Aunt Lucy\'s Candies sells standard and premium chocolate candies through its ca

Question

Aunt Lucy's Candies sells standard and premium chocolate candies through its catalog business. Many of the candies are sold in bulk to other companies. Last year, the company incurred $300,000 in overhead costs. After implementing activity-based costing (ABC), the company's controller identified the following information:

Activity
Allocation Base
Proportion of Overhead Cost
Purchasing
Number of purchase orders
30%
Processing
Number of units
50%
Sales
Number of sales orders
20%
The number of activities for standard and premium candies is as follows:


Standard

Premium
Number of purchase orders
4,000

2,000
Number of units
200,000

100,000
Number of sales orders
3,000

1,000
What is the overhead rate for the processing activity?
Answer
a. $0.97
b. $2.00
c. $0.50
d. $1.00
2 points
Question 46

Refer to the Aunt Lucy's Candies information above. What is the overhead rate for the purchasing activity?
Answer
a. $15.00
b. $0.07
c. $50.00

Explanation / Answer

Since processing activity is 50% of overhead and overhead is $300,000, processing activity is 300,000*0.50 = 150,000. $150,000/300,000 units = $0.50 per unit. First answer: C, $0.50. Purchasing activity is 30% of overhead, purchasing is 300,000*0.30 = 90,000. $90,000/6,000 purchase orders = $15 per purchase order. sEcond answer: A, $15.00

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