3. McCaskey Corporation uses an activity-based costing system with the following

Question

3. McCaskey Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Fabrication..40,000 machine-hours Order processing... Total Activity 500 orders 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 Depreciation100,000 120.000 $640,000 Occupancy The distribution of resource consumption across activity cost pools is given below: Wages and salaries... Depreciation. Occupancy.. Fabrication 5% 15% 25% Activity Cost Pools Order Processing 80% 45% 50% Other 15% 40% 25% Total 100% 100% 100% The activity rate for the Fabrication activity cost pool is closest to: A. $0.80 per machine-hour B. $1.65 per machine-hour C. $4.00 per machine-hour D. $2.40 per machine-hour

Explanation / Answer

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 B)$1.65 per machine-hour

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