Alphonse has the following estimates for the upcoming year:

Activity Cost Pool Estimated Overhead Cost Estimated Activity
Machine-related $ 59,800 23,000 machine-hours
Machine setups $ 41,600 260 setups
Product testing $ 120,000 570 tests
Production orders $ 155,000 210 orders

Compute the activity rate for the machine setup cost pool (Round your answer to 2 decimal places).

The activity rate for the machine setup cost pool is $160.00

Explanation:

The activity rate for machine setup cost pool is computed as :

machine setup costs/number of setups

Machine set up costs is $41600

Number of setups is 260 setups

Activity rate for machine setup=$41600/260

                                                    =$160.00

The activity rate for machine setup is $160 per setup

Activity rate shows how much per activity is allocated to product under activity based.

Determining activity rate is the of one steps to be taken in Activity Based Costing and Activity Based Management

The other steps include:

Identification of activity incurring costs

Assigning costs to activity

Assignment of costs to cost objects and so on.

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