Devon Company uses activity-based costing to determine the costs of its two products: A and B. The total estimated cost of the purchasing function activity pool is $14,000. The cost driver for that pool equals number of purchase orders. A total of 400 purchase orders are expected to be issued for the budgeted production of Product A and 300 purchase orders are expected to be issued for the budgeted production of Product B. The activity rate for the purchasing cost pool is:

Question

Business

Nancy Lutz

16 November, 20:50

Devon Company uses activity-based costing to determine the costs of its two products: A and B. The total estimated cost of the purchasing function activity pool is $14,000. The cost driver for that pool equals number of purchase orders. A total of 400 purchase orders are expected to be issued for the budgeted production of Product A and 300 purchase orders are expected to be issued for the budgeted production of Product B. The activity rate for the purchasing cost pool is:

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Jonathon Ellis · Answer 1

The activity rate will be 20 per order.

For product A it will be $8,000 applied

for Product B it will be $6,000 applied

Explanation:

estimated cost / activity pool = rate

14,000 / 700 = 20

Applied cost:

activity x rate

Product A 400 x 20 = 8,000

Product B 300 x 20 = 6,000