Answer:
Espinoza Company
The activity rate for the order fulfillment cost pool:
Expenses associated with fulfilling orders divided by the number of orders
= $130,500/3,500
= $37.29 per order
Explanation:
a) Relevant data and calculations:
Overhead expenses:
Salaries and wages: 220,000
Other expenses: 150,000
Total: $510,000
Distribution of resource usage:
Filling Orders Activity Cost Pools
Filling Orders Customer Support Other Total
Wages and salaries 35% 55% 10% 100%
Other expenses 35% 50% 15% 100%
Fulfilling orders: 3,500 orders
Customer support: 15 customers
Overhead Allocation:
Filling Orders Customer Other Total
Support
Salaries and wages: $77,000 $121,000 $22,000 $220,000
Other expenses: $53,500 $75,000 $22,500 $150,000
Total: $130,500 $196,000 $44,500 $370,000
The activity rate for fulfilling orders is determined as $130,500/3,500, giving $37.29 per order.
Activity Based Costing (ABC) is a costing method that uses activity pools to gather and allocate overhead expenses based on the level of engagement for each activity pool.
