What are the overhead rates used to apply material handling (MH) and storage costs (SC) using activity-based costing?
Assume that a pet food manufacturer is considering adding two types of pet food to its existing product line. Research had determined that good demand exists for dog food in 40-pound bags and cat food in 0.5 pound cans.
The company identified the following partial list of activities, costs, and activity drivers expected for the next year:
A) MH $300/batch; SC $2.73/unit.
B) MH $300/batch; SC $.20/lb.
C) MH $525/batch; SC $.205/unit.
D) MH $700/batch; SC $.205/lb.
E) MH $700/batch; SC $8.20/lb.
B) MH $300/batch; SC $.20/lb.
Explanation: MH = $105,000/350 batches = $300/batch;
SC = $820,000/[(100,000 u. × 40lbs) + (200,000 × .5)] = $.20/lb
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