Anola Company has two products: A and B. The company uses activity-based costing. The estimated total cost and expected activity for each of the company's three activity cost pools are as follows:Cost PoolEstimated CostActivity - Product AActivity - Product BTotal ActivityActivity 1$18,000300200500Activity 2$16,000500100600Activity 3$27,000600300900The activity rate under the ABC system for Activity 3 is:

Anola Company

Activity 3 rate under the ABC System is:

$30 per activity

Explanation:

a) Data and Calculations:

Cost Pool

Activity  Estimated Cost    Activity -        Activity -       Total

                                         Product A     Product B      Activity

Activity 1  $18,000                 300                200            500

Activity 2 $16,000                 500                 100            600

Activity 3 $27,000                 600                300            900

Activity 3 rate = $27,000/900 = $30

b) The activity rate is the product of the estimated cost of the activity divided by the total activity under the activity cost pool.

c) Under ABC costing technique, costs are accumulated and allocated based on the volume of activity.  This is to ensure that each cost unit is allocated a cost that measures with the level of activity for the unit.  It eliminates arbitrary allocation of costs.

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