Chapter 26, Problem 26.4APR

(1)

To determine

Activity-based costing (ABC) method: The costing method which allocates overheads to the products based on factory overhead rate for each activity or cost object, according to the cost pooled for the cost drivers (allocation base).

Formula to compute activity-based overhead rate:

$\begin{array}{l}\text{Activity-based}\\ \text{overhead rate}\end{array}\}\text{ = }\frac{\text{Budgeted activity cost}}{\text{Total activity-base usage}}$

To compute: The activity-based overhead rate for each of the given activities

(2)

To determine

To compute: The activity-cost allocated to total and per unit of each of the products.

(3)

To determine

To discuss: The reason for the difference in activity-based overhead cost per unit of each of the products, despite the equal consumption of 40 minutes of machine time per unit.