Question

Marquette Corporation has an activity-based costing system with three activity cost pools--Processing, Setting Up, and Other. Costs in the Processing cost pool are assigned to products based on machine-hours (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pool are not assigned to products. Data concerning the two products and the company's costs and activity-based costing system appear below:

	Activity Cost Pools	Costs
	Processing	$111,600
	Setting up	$25,400
	Other	$57,000

		MHs	Batches
	Product Golden	8,000	200
	Product Eagle	12,000	800
	Total	20,000	1,000

		Product Golden	Product Eagle
	Sales (total)	$315,300	$401,100
	Direct materials (total)	$72,600	$145,200
	Direct labor (total)	$106,400	$96,200

REQUIRED

1. 1. Calculate the activity rate for the Processing Cost Pool using activity-based costing.
2. 2. Calculate the activity rate for the Setting Up Cost Pool using activity-based costing
3. 3. Compute the amount of overhead cost that would be assigned to Product Golden.
4. 4. Determine the product margin for Product Golden using activity-based costing.

Answer 1

Computation of Activity Rates
Cost Pools	Costs	Drivers	Volume	Rate
Processing	$ 111,600.00	MHs	20000	$      5.58
Setting Up	$   25,400.00	No. of batches	1000	$   25.40

Computation of OH cost to be assigned to Product Golden
Particulars			Amount
Processing	(8000 x $ 5.58)		$   44,640.00
Setting Up	(200 x $ 25.40)		$     5,080.00
			$   49,720.00

	Computation of Product Margin for Product Golden
	Sales			$ 315,300.00
Less:	Costs
	Direct materials		$   72,600.00
	Direct Labor		$ 106,400.00
	OH		$   49,720.00	$ 228,720.00
	Product Margin			$   86,580.00