Home › ACCA › Management Accounting › Activity-Based Costing › A manufacturer budgets $195,000 for fabrication.…
A manufacturer budgets $195,000 for fabrication. Golf carts use 1,800 direct labour hours of fabrication and go karts use 1,200. What is the fabrication activity rate?
A$65 per direct labour hour
B$40 per direct labour hour
C$70 per direct labour hour
D$85 per direct labour hour
Answer & Solution
Correct answer: A. $65 per direct labour hour
1. An activity rate divides the budgeted cost of the activity by the total budgeted usage of its base across all products.
2. Fabrication hours total 1,800 plus 1,200, which is 3,000 direct labour hours.
3. $195,000 divided by 3,000 hours gives $65 per direct labour hour.
4. $40 is the assembly rate, built from $160,000 over 4,000 hours, so it uses a different pool and a different base.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 4.6 Activity-Based Costing for a Manufacturing Business to Estimate Factory Overhead_
Related questions
Moving to activity-based costing tends to change the per-unit cost of low-volume products One stated disadvantage of activity-based costing is that the method is:When the entire finished goods inventory is sold, net income under the two methods is:Fixed overhead is $12,000 and 10,000 units are made. Under absorption costing each unit caWhy is activity-based costing described as a more accurate way of allocating overhead?In the five stages of activity-based costing, activity rates are calculated for each:Absorption costing applies all direct costs, fixed overhead and variable overhead to the:Under variable costing, fixed overhead costs are treated in which way?