Question

Musich Corporation has an activity-based costing system with three activity cost pools--Machining, Setting Up, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.

                                                               Activity Cost Pools

	Machining		Setting Up			Other			Total
Equipment depreciation	$	7600		$	44,200		$	22,000		$	73,800
Indirect labor		1800			2000			3200			7000
Total	$	9400		$	46,200		$	25,200		$	80,800

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. Data concerning the two products and the company's costs appear below:

	MHs	Batches
Product Z3	5100	300
Product T1	5300	900
Total	10,400	1200

                                                           Product Z3      Product T1

Sales (total)	$	212,800	$	246,500
Direct materials (total)	$	79,500	$	95,800
Direct labor (total)	$	108,200	$	100,700

Required:

Calculate the following:

Machining Activity Rate	$
Setting up Activity Rate	$
Amount of OH applied to product Z3 (round to the nearest dollar)	$
Amount of OH applied to product T1 (round to the nearest dollar)	$
Product Margin – Z3 (round to the nearest dollar)	$
Product Margin – T1 (round to the nearest dollar)	$

Answer 1

1) Machining Activity Rate= Total cost of machining/Total machine hours

= $9400/10400= $0.90 per machine hour

2) Setting up Activity Rate= Total cost of setting up/Total batches

= $46200/1200= $38.50 per batch

3)

	Product Z3
Machining costs (5100*$0.90)	$4590
Setting up costs (300*$38.50)	11550
Total amount of OH applied to product Z3	$16140

4)

	Product T1
Machining costs (5300*$0.90)	$4770
Setting up costs (900*$38.50)	34650
Total amount of OH applied to product T1	$39420

5)

Sales		$212800
Less: Costs
Direct materials	$79500
Direct labor	108200
Overhead applied	16140
Total costs		203840
Product margin- Z3		$8960

6)

Sales		$246500
Less: Costs
Direct materials	$95800
Direct labor	100700
Overhead applied	39420
Total costs		235920
Product margin- T1		$10580