Question

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)	$	33,800
Indirect labor (total)	$	7,950

Distribution of Resource Consumption Across Activity Cost Pools

	Machining	Setting Up	Other
Equipment depreciation	0.30	0.30	0.40
Indirect labor	0.30	0.10	0.60

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	8,900	1,300
Product C0	6,300	1,800
Total	15,200	3,100

Additional data concerning the company's products appears below:

	Product S4			Product C0
Sales (total)	$	88,100		$	75,500
Direct materials (total)	$	27,600		$	24,900
Direct labor (total)	$	41,100		$	33,800

Required:

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.

Answer 1

a(				machining	Setup	other
	Equipment deprecation			10140	10,140	13520
	indirect labor			2385	795	4770
	total			12525	10,935	18290
b)	activity overhead rate
	Machining	(12,525/15200)			0.82	per machine hr
	setup	(10935/3,100)=			3.53	per batch
	overhead assinged
c)
	product S4			7334	4586	11919
	product C0			5191	6349	11541
	total			12525	10935	23460
d)	product margins			product s4	product CO
	sales			88,100	75,500
	less
	Direct materials			27,600	24,900
	direct labor			41,100	33,800
	overhead			11919	11541
	total cost			80,619	70,241
	product margins			7,481	5,259