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1. A company uses activity-based costing to determine the costs of its three products: A, B,...

1. A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:

Budgeted Activity
Activity Cost Pool Budgeted Cost Product A Product B Product C
Activity 1 $ 89,000 7,900 10,900 21,900
Activity 2 $ 64,000 8,900 16,900 9,900
Activity 3 $ 120,000 4,400 2,900 3,525


How much overhead will be assigned to Product B using activity-based costing?

2. Angle Max Industries produces a product which goes through two operations, Assembly and Finishing, before it is ready to be shipped. Next year’s expected costs and activities are shown below.

Assembly Finishing
Direct labor hours 290,000 DLH 159,000 DLH
Machine hours 490,000 MH 144,550 MH
Overhead costs $ 490,000 $ 779,100

(LO 3) Assume that the Assembly Department allocates overhead based on machine hours, and the Finishing Department allocates overhead based on direct labor hours. How much total overhead will be assigned to a product that requires 1 direct labor hour and 4.4 machine hours in the Assembly Department, and 5.0 direct labor hours and 0.6 machine hours in the Finishing Department?

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Homework Answers

Answer #1

Solution 1:

Computation of activity rate and Allocation of Overhead - Product B
Activity Estimated Overhead Cost Usage of Activity Base Activity Rate Product B
Usage Allocated Costs
Activity 1 $89,000.00 40700 $2.19 10900 $23,835
Activity 2 $64,000.00 35700 $1.79 16900 $30,297
Activity 3 $120,000.00 10825 $11.09 2900 $32,148
Total $273,000.00 $86,280

Solution 2:

Overhead rate per machine hours of assembly department = $490,000 / 490000 = $1 per machine hour

Overhead rate per labor hour of finishing department = $779,100 / 159000 = $4.90 per labor hour

Overhead assigned to product- (4.4*$1) + (5*$4.90) = $28.90

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