Chapter 4, Problem 5PA

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 each of the products

3.

To determine

To draft: Customer profitability report of Incorporation AA for the year ended December 31

4.

To determine

To discuss: The inferences from the customer profitability report