#1 Summarize the four steps in an activity-based costing system: #2 Aimee Cosmet
ID: 2535273 • Letter: #
Question
#1 Summarize the four steps in an activity-based costing system:
#2 Aimee Cosmetics Company uses the following allocation rates from its activity based costing system to assign overhead costs to products:
Activity : Allocation Rate
Purchasing raw materials : $40 per purchase order
Setting up machines for production : $150 per set-up
Inspecting finished products : $25 per inspection
.
Product A1 uses the following:
17 purchase orders
4 set-ups
12 inspections
How much overhead cost would be assigned to Product A1?
a) $7,095 b) $215 c) $1,580 d) $600
Step 1 Step 2 Step 3 Step 4Explanation / Answer
Answer:-1)- Activity-based costing involves the following four steps:
a)- Identify the activities -such as processing orders- that consume resources and assign costs to them.
b)-Identify the cost driver(s) associated with each activity. A cost driver causes, or "drives" an activity's costs. For the order-processing activity, the cost driver could be the number of orders.
c)- Compute a cost rate per cost driver unit or transaction. The cost driver rate could be the cost per order, for example.
d)-Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product.
2)- Overhead cost would be assigned to Product A1:-
($40 per purchase order*17 orders)+ ($150 per set up*4 set ups)+($25 per inspection*12 inspections)
=$680+$600+$300 = $1580
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