How do I compute the activity rate for each activity cost pool and determine the unit product cost under the ABC system?

To compute the activity rate for each activity cost pool, you need to follow a few simple steps:

1. Identify the Activity Cost Pools: List all the activity cost pools relevant to your products. These could include things like machine setup, inspections, and material handling.
2. Determine the Total Costs per Pool: For each activity cost pool, calculate the total cost incurred. This information is usually gathered from cost accounting records.
3. Measure the Total Activity Level: Find out the total level of activity associated with each cost pool. This could be measured in hours, number of setups, or any other relevant metric.
4. Compute the Activity Rate: Use the formula:
   Activity Rate = Total Cost for the Cost Pool / Total Activity Level
   Round your final answers to two decimal places to maintain consistency.

For example, if your machine setup cost pool has a total cost of $10,000 and there are 200 setups, the activity rate would be:

Activity Rate = $10,000 / 200 = $50.00 per setup

Next, to determine the unit product cost for each product according to the Activity-Based Costing (ABC) system, follow these steps:

1. Identify Products and Relevant Costs: First, list all the products and identify the relevant activity costs associated with each product.
2. Assign Activity Costs to Products: Using the activity rates computed earlier, allocate the costs to each product based on their respective activity levels.
   For instance, if Product A requires 5 setups, you would calculate the cost assigned from the machine setup pool as follows:
   Cost for Product A = Activity Rate x Number of Setups = $50.00 x 5 = $250.00
3. Total Cost per Product: Sum all of the costs assigned to each product to get the total cost.
4. Calculate Unit Product Cost: Finally, to find the unit product cost, divide the total cost of the product by the number of units produced.
   For example, if Product A has a total cost of $250.00 and produced 50 units, the unit product cost would be:
   Unit Product Cost = Total Cost / Number of Units = $250.00 / 50 = $5.00

Following these steps will ensure you accurately compute the activity rates and determine the unit product costs under the ABC system.