Rustafson Corporation is a diversified manufacturer of consumer goods. The company's activity-based costing system has the following seven activity cost pools Activity Cost Pool Estimated Overhead Cost Expected Activity
Labor-related $ 52,000 8,000 direct labor-hours
Machine-related $ 15,000 20,000 machine-hours
Machine setups 42,000 1,000 setups
Production orders 18,000 500 orders
Product testing $48,000 2,000 tests
Packaging $ 75,000 5,000 packages
General factory 108,800 8,000 direct labor-hours
a. Compute the activity rate for each activity cost pool. (Round your answers to 2 decimal places.)
b. Compute the company's predetermined overhead rate, assuming that the company uses a single plantwide predetermined overhead rate based on direct labor-hours. (Round your answer to 2 decimal places.)"

Answer and Explanation:

a. The computation of the activity rate is shown below:

                       (a)                         (b)                      (a ÷ b)

Activity            Estimated            Expected         Activity rate

Cost Pool        Overhead Cost   Activity

Labor-related   $52,000            8,000                 $6.50

                                                   direct labor-hours

Machine-related $15,000           20,000              $0.75

                                                    machine-hours

Machine setups 42,000              1,000 setups      $42

Production orders 18,000           500 orders         $36

Product testing  $48,000            2,000 tests        $24

Packaging           $75,000          5,000 packages  $15

General factory   108,800           8,000                 $13.60

                                                     direct labor-hours

Total                   $358,800

b. The company predetermined overhead rate is shown below:

= Total estimated overhead cost ÷ direct labor hours

= $358,800 ÷ 8,000 direct labor hours

= $44.85

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