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.

Homework Answers

Answer #1

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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