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)	$	29,400
Indirect labor (total)	$	7,380

Distribution of Resource Consumption Across Activity Cost Pools

	Machining	Setting Up	Other
Equipment depreciation	0.30	0.20	0.50
Indirect labor	0.50	0.30	0.20

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	12,000	200
Product C0	3,600	1,800
Total	15,600	2,000

Additional data concerning the company's products appears below:

	Product S4			Product C0
Sales (total)	$	80,600		$	74,300
Direct materials (total)	$	25,400		$	29,300
Direct labor (total)	$	37,000		$	32,900

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.

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)	$	29,400
Indirect labor (total)	$	7,380

Distribution of Resource Consumption Across Activity Cost Pools

	Machining	Setting Up	Other
Equipment depreciation	0.30	0.20	0.50
Indirect labor	0.50	0.30	0.20

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	12,000	200
Product C0	3,600	1,800
Total	15,600	2,000

Additional data concerning the company's products appears below:

	Product S4			Product C0
Sales (total)	$	80,600		$	74,300
Direct materials (total)	$	25,400		$	29,300
Direct labor (total)	$	37,000		$	32,900

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.

Required:

a. Assign overhead costs to activity cost pools using activity-based costing.

	Activity Cost Pools
	Machining	Setting Up	Other	Total
Equipment depreciation
Indirect labor
Total

b. Calculate activity rates for each activity cost pool using activity-based costing.

Activity Cost Pools	Activity Rate
Machining		per MH
Setting up		per batch

c. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

	Amount of Overhead Cost
Product S4
Product C0

d. Determine the product margins for each product using activity-based costing.

	Product Margin
Product S4
Product C0

Answer 1

1		Activity Cost Pools
		Machining	Setting Up	Other	Total
	Equipment depreciation	8820	5880	14700	29400
	Indirect labor	3690	2214	1476	7380
	Total	12510	8094	16176	36780
2	Activity Cost Pools	Activity Rate
	Machining	0.80	per MH
	Setting up	4.047	per batch
3		Amount of Overhead Cost
	Product S4	10432.48
	Product C0	10171.52
4		Product S4	Product C0
	Sales (total)	80,600	74,300
	Direct materials (total)	25,400	29,300
	Direct labor (total)	37,000	32,900
	Overhead Cost	10432.48	10171.52
	Product margin	7,768	1,928