A company identified the following partial list of activities, costs, and activi

Question

A company identified the following partial list of activities, costs, and activity drivers expected for the next year:

Activity expected costs cost driver

Extrusion costs 83,600 # batches made

Handling costs 8,800 # of orders filled

Packaging costs 40,500 # of units made

Product A Product B

Production volume 750,000 units 600,000 units

Batches made 200 batches 750 batches

Orders filled 75 200

Calculate activity rates for each of the three activities using activity-based costing (ABC). Extrusion: $304 per batch; handling: $32 per unit; packaging: $.03 per unit. Extrusion: $88 per batch; handling: $32 per order; packaging: $.03 per unit. Extrusion: $88 per order; handling: $32 per unit; packaging: $.03 per batch. Extrusion: $418 per batch; handling: $117.33 per order; packaging: $.054 per unit. Extrusion: $118.13 per batch; handling: $44 per order; packaging: $.0675 per unit.

Explanation / Answer

Calculation of activity rates Activity rate = Total cost of activity / Total No.of Cost driver Activity Total Cost Cost driver Total No.of cost driver Activity rate Extrusion 83600 Batches made 950 $88 per batch Handling 8800 No.of orders filled 275 $32 per order Packaging 40500 no.of units made 1350000 $0.03 per unit The answer is option 2

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