Question

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, the activity rates are Blank______.

Multiple choice question.

$8 per customer call and $15 per development hour


$11.11 per customer call or per development hour


$20 per customer call and $25 per development hour

Answer 1

To determine the activity rates for the given cost pools, we need to divide the total cost of each activity cost pool by the total activity for that pool.

1. **Customer Service Activity Rate:**
- Total Cost of Customer Service = $200,000
- Total Customer Service Calls = 25,000

Activity Rate for Customer Service = Total Cost / Total Activity
\[
\text{Activity Rate for Customer Service} = \frac{200,000}{25,000} = 8 \text{ per customer call}
\]

2. **Product Development Activity Rate:**
- Total Cost of Product Development = $300,000
- Total Development Hours = 20,000

Activity Rate for Product Development = Total Cost / Total Activity
\[
\text{Activity Rate for Product Development} = \frac{300,000}{20,000} = 15 \text{ per development hour}
\]

Thus, the activity rates are:
- $8 per customer call (Customer Service)
- $15 per development hour (Product Development)

**Answer:** $8 per customer call and $15 per development hour.