Question

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.

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