Question

Greife Corporation's activity-based costing system has three activity cost pools--Machining, Setting Up, and Other. The company's overhead costs have already been allocated to these cost pools as follows: Machining $ 15,200 Setting Up $ 44,800 Other $ 16,000 Costs in the Machining 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. The following table shows the machine-hours and number of batches associated with each of the company's two products: MHs Batches Product K0 2,000 800 Product W9 8,000 200 Total 10,000 1,000 Additional data concerning the company's products appears below: Product K0 Product W9 Sales (total) $ 220,700 $ 165,500 Direct materials (total) $ 78,600 $ 83,100 Direct labor (total) $ 89,600 $ 58,000 Required: 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. c. Determine the product margins for each product using activity-based costing.

Answer 1

a. Calculate activity rates for each activity cost pool using activity-based costing.

	Activity rate
Machining (15200/10000)	1.52 per machine hour
Setting up (44800/10000)	44.80 per batch

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

	Product K0	Product W9
Machining	2000*1.52 = 3040	8000*1.52 = 12160
Setting up	44.8*800 = 35840	44.8*200 = 8960
Total	38880	21120

c. Determine the product margins for each product using activity-based costing.

	Product K0	Product W9
Sales	220700	165500
Direct material	78600	83100
Direct labour	89600	58000
Overhead	38880	21120
Product margin	13620	3280