Question

Addleman Corporation has an activity-based costing system with three activity cost pools--Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

Overhead costs:
Equipment expense	$	73,000
Indirect labor	$	1,000

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Processing	Supervising		Other
Equipment expense	0.20	0.10		0.70
Indirect labor	0.20	0.20		0.60

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow:

Activity:

	MHs (Processing)	Batches (Supervising)
Product W3	7,600	100
Product H7	2,400	900
Total	10,000	1,000

Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins.

Sales and Direct Cost Data:

	Product W3		Product H3
Sales (total)	$	159,500	$	154,100
Direct materials (total)	$	66,300	$	55,300
Direct labor (total)	$	77,800	$	84,100

What is the overhead cost assigned to Product H3 under activity-based costing?

Answer 1

Overhead cost assigned to Product H3 under activity based costing: $ 10,302.

Workings:

First stage allocation of overhead cost to activity cost pools:

	Processing	Supervising	Other	Total
Equipment Expense	14,600	7,300	51,100	73,000
Indirect Labor	200	200	600	1,000
Totals	14,800	7,500	51,700	74,000

Activity Rates:

Processing	$ 1.48 per MH
Supervising	$ 7.50 per batch
Other	NA

Overhead cost assigned to Product H3 = $ 1.48 x 2,400 MH + $ 7.50 x 900 = $ 10,302.