Question

Farrow Corporation manufactures two products: A and B. The total indirect manufacturing overhead resource costs of $100,350 have been assigned to four activity cost pools that use the following cost drivers:

Product	Number of Setups	Machine Runs	Packing Hours	Orders
Product A	20	35	1,000	75
Product B	10	70	1,500	125
Cost per Pool	$8,100	$5,100	$65,000	$22,000

Required:

a.   Compute the unit activity costs for each of the cost drivers listed.

b.   Assign the overhead costs to products A and B using activity-based costing.

  

Answer 1

		Cost		Total
a)	Cost Pool	per pool	Drivers	Volume	Rates
	Setup	$   8,100.00	No. of setups	30	$     270.00
	Machine	$   5,100.00	Machine Runs	105	$       48.57
	Packing	$ 65,000.00	Packing Hours	2500	$       26.00
	Orders	$ 22,000.00	Orders	200	$     110.00

b)	Particulars		A	Workings	B	Workings
	Setup		$   5,400.00	($ 270 x 20)	$   2,700.00	($ 270 x 10)
	Machine		$   1,700.00	($ 48.57 x 35)	$   3,400.00	($ 48.57 x 70)
	Packing		$ 26,000.00	($ 26 x 1000)	$ 39,000.00	($ 26 x 1500)
	Orders		$   8,250.00	($ 110 x 75)	$ 13,750.00	($ 110 x 125)
			$ 41,350.00		$ 58,850.00