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) 25.41 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

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.