Spring Company uses activity-based costing to allocate their overhead costs. Setup costs ot $100,000 are based on number of batches. Plant service costs of $65,000 are based on square footage. Spring Company has identified 500 batches and has 10,000 square feet in their factory. What is the activity rate for the setup activity cost pool. Click the answer you think is right.

A.$6.50

B.$200.00

C.$330.00

D.$16.50

Solution:

Activity-based costing (ABC) is an aggregate and indirect costs accounting tool for related products. This costing approach considers the relation between the prices, labour operations as well as the manufactured goods, and attributes administrative costs less randomly to products than conventional costing approaches.

Nevertheless, a company can not be allocated for indirect costs such as marketing and employee salaries.

So, activity rate for the setup activity cost pool = 10,000 / 500

= $200.00