Activities Costs Cost Driver Account inquiry (number of hours) $61,000 2,400 hours

Account billing (number of bills) $35,000 17,000 bills

Account verification (number of accounts) $13,000 20,000 accounts

Correspondence (number of letters) $11,000 1,000 letters

What is the cost per hour for the account inquiry activity? (Round your answer to the nearest cent.)

A. $25.42
B. $11.00
C. $0.65
D. $2.06

A. $25.42

Explanation:

Calculations:

The cost per hour for the account inquiry is calculated as by using below formula;

Total cost of Account Inquiry ÷ Total Hours of Account Inquiry.

$61,000 ÷ 2,400 = $25.42 per hour.

a)  25.41 per hour

Explanation:

Under activity-based costing method, overheads are charged to units produced using cost drivers unlike the traditional absorption costing where overhead are charged using volume-related bases only like direct labour hours.

Cost drivers are the most important factors that cause a change in the amount of overhead incurred. For example, an appropriate cost driver for account inquiry overhead would be number of hours . And this would be used to charged overhead  accordingly

Activity Overheads rate = Activity overhead / number of cost drivers

  Account inquiry overhead per hour

                                    =$61,000 /2,400 hours

                                       = 25.41 per hour

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