Problem:
Tatman Corp. uses an activity-based costing system with the following 3 activity cost pools:
Activity Cost Pool Total Activity
Fabrication................... 10,000 machine-hours
Order processing.............. 800 orders
Other......................... 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 concerniing its costs:
Wages and salaries..........$320,000
Depreciation................ 220,000
Occupancy................... 120,000
Total....................... $660,000
The distribution of resource consumption across activity cost pools is given:
Activity Cost Pools
Order
Fabrication Processing Other Total
Wages and salaries.....20% 65% 15% 100%
Depreciation........... 15% 35% 50% 100%
Occupancy.............. 5% 70% 25% 100%
The activity rate for the FABRICATION activity cost pool is closest to:
A) $3.30 per machine hour
B) $13.20 per machine hour
C) $10.30 per machine hour
D) $8.80 per machine hour