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.
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.
|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|
|b) Computation of overhead cost assigned for each product|
|Product Z||Product K|
|Machining @ $ 0.58 per hour||2204||3596|
|Setting Up @ $ 4.7 per batch||3290||1410|
|Total overhead costs||5494||5006|
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