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	$	60,592
Setting Up	$	93,729
Other	$	22,500

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	2,200	1,320
Product W9	8,620	670
Total	10,820	1,990

Additional data concerning the company's products appears below:

	Product K0		Product W9
Sales (total)	$	284,000	$	226,000
Direct materials (total)	$	88,300	$	84,200
Direct labor (total)	$	99,300	$	58,300

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.  Hint - The costs allocated to the "Other" cost pool are not assigned to products or customers.

c. Determine the product margins for each product using activity-based costing.  Hint - When calculating the product margin for a product, consider the sales amount less the costs that are directly attributable to it (DM and DL) as well as the overhead costs that are assigned to it (as determined in the prior requirement).

Answer 1

a	Activity cost pools	Activity Rate
	Machining($60,592/10,820 hours)	$5.60	per MH
	Setting up($93,729/1,990 bacthes)	$47.10	per batches
b		Product K0	Product W9
	Machining(Machine hours*$5.60)	$12,320	$48,272
	Setting up(No. of batches*$47.10)	$62,172	$31,557
	Total overhead cost allocated to products	$74,492	$79,829
c		Product K0	Product W9
	Sales	$2,84,000	$2,26,000
	Less:Direct materials	$88,300	$84,200
	Less:Direct labor	$99,300	$58,300
	Less:Overhead cost	$74,492	$79,829
	Product margins	$21,908	$3,671