Question

# Howell Corporation's activity-based costing system has three activity cost pools--Machining, Setting Up, and Other. The company's...

Howell Corporation's activity-based costing system has three activity cost pools--Machining, Setting Up, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources.

 Equipment depreciation (total) \$ 35,300 Indirect labor (total) \$ 7,910

Distribution of Resource Consumption Across Activity Cost Pools

 Machining Setting Up Other Equipment depreciation 0.40 0.10 0.50 Indirect labor 0.40 0.40 0.20

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.

 MHs Batches Product S4 8,300 400 Product C0 7,800 1,600 Total 16,100 2,000

Additional data concerning the company's products appears below:

 Product S4 Product C0 Sales (total) \$ 80,100 \$ 65,700 Direct materials (total) \$ 22,200 \$ 22,800 Direct labor (total) \$ 41,500 \$ 27,000

Required:

a. Assign overhead costs to activity cost pools using activity-based costing.

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

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

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

a)

 Machining Setting Up Other Equipment depreciation 35300*.40=14120 35300*.10=3530 35300*.50= 17650 Indirect labor 7910*.40=3164 3164 7910*.20= 1582 Total cost allocated 17284 6694 19232

b)

 Activity cost / Activity driver = Activity rate Machining 17284 16100 1.07354 per MH setting up 6694 2000 3.347 per batch

c)

 Product S4 Product C0 Machining 8300*1.07354=8910 7800*1.07354=8374 Setting up 400*3.347=1339 1600*3.347=5355 Total overhead assigned 10249 13729

d)

 Product S4 Product C0 sales 80100 65700 Less:cost Direct material 22200 22800 Direct labor 41500 27000 overhead assigned 10249 13729 Product margin 6151 2171

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