Question

ABC Corporation has an activity based costing system with three activity cost pools- Machining, Setting up, and Other. The company's overhead costs have already been allocated to the cost pools and total $5,800 for the machining cost pool, $4,700 for the setting up cost pool, and $7,500 for the other cost pool. Costs in the machining cost pool are assigned to products based on machine-hours 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 appear below.

	MHs	Batches
product Z	3,800	700
product K	6,200	300
total	10,000	1,000

a. calculate activity rates for each activity cost pool using activity based costing

b. determine the amount of overhead cost that would be assigned to each product using activity based costing.

Answer 1

Activity cost pool	Overhead cost $	Cost Driver	Number of activities	ABC Rate $
machining	5800	Machine-Hours	10000	0.58	per machine hour
Setting Up	4700	Number of Batches	1000	4.7	per Batch
Others	7500	Not assigned
	18000
b) Computation of overhead cost assigned for each product
	Product Z	Product K
Overhead cost;
Machining @ $ 0.58 per hour	2204	3596
Setting Up @ $ 4.7 per batch	3290	1410
Total overhead costs	5494	5006