Espinoza Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has prov

Question

26 days ago

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Espinoza Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has prov

ided the following data concerning its annual overhead costs and its activity based costing system:
Overhead costs:

Wages and salaries 220,000
Other expenses 150,000
Total $510,000

Distribution of resource consumption:

Filling Orders Activity Cost Pools Customer Support Other Total

Wages and salaries 35% 55% 10% 100%
Other expenses 35% 50% 15% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The activity measures for the activity cost pools for the year are as follows:

Activity Cost Pool Activity

Filling orders 3,500 orders
Customer support 15 customers.

What would be the overall activity rate for the filling orders activity cost pool?

Business

1 answer:

marusya05 [3K] · Answer 1 · 2026-03-09T15:14:24+03:00

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.