Question

Meester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

Overhead costs:

Equipment depreciation	$	78,000
Supervisory expense	$	2,000

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.40	0.10		0.50
Supervisory expense	0.50	0.10		0.40

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

Activity:

	MHs (Machining)	Orders (Order Filling)
Product M0	1,000	600
Product H2	9,000	1,400
Total	10,000	2,000

How much overhead cost is allocated to the Order Filling activity cost pool under activity-based costing?

Multiple Choice

• $28,980

• $5,600

• $8,000

• $40,000

Answer 1

We need to allocated overheads to activity cost pools based on the consumption percentage given in the question:

Allocation of Overhead Costs to Activity Cost Pools
	Machining	Order Filling	Others	Total
Equipment Depreciation	$31,200 (78000*.4)	$7,800 (78000*0.10)	$39,000 (78,000*0.5)	$78,000
Supervisory Expense	$1,000 (2000*0.5)	$200 (2000*0.1)	$800 (2000*0.4)	$2,000
Total	$32,200	$8,000	$39,800	$80,000

$8,000 overhead cost is allocated to the Order Filling activity cost pool under activity-based costing

Hence, the correct option is $8,000

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