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) \$ 27,800 Indirect labor (total) \$ 7,210

Distribution of Resource Consumption Across Activity Cost Pools

 Machining Setting Up Other Equipment depreciation 0.40 0.20 0.40 Indirect labor 0.30 0.30 0.40

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 13,800 300 Product C0 5,200 1,900 Total 19,000 2,200

Additional data concerning the company's products appears below:

 Product S4 Product C0 Sales (total) \$ 80,800 \$ 64,600 Direct materials (total) \$ 22,200 \$ 22,100 Direct labor (total) \$ 43,100 \$ 29,100

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.

1) First stage allocation

 Machining Setting up Other Total Equipment depreciation 11120 5560 11120 27800 Indirect labor 2163 2163 2884 7210 Total 13283 7723 14004 35010

2) Activity rate

Machining = 13283/19000 = 0.70 per MH

Setting up = 7723/2200 = 3.51 per setup

 Product S4 Product C0 Machining 9660 3640 Setting up 1053 6669 Total overhead 10713 10309

4) Product margin

 Product S4 Product C0 Sales revenue 80800 64600 Direct material 22200 22100 Direct labor 43100 29100 Overhead 10713 10309 Product margin 4787 3091