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|
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:
|Product Z3||Product T1|
|Direct materials (total)||$||88,000||$||99,200|
|Direct labor (total)||$||111,600||$||109,200|
a. Calculate activity rates for each activity cost pool using activity-based costing.
b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
c. Determine the product margins for each product using activity-based costing.
a.calculation of activity rate for each cost pool:
activity rate = total cost of activity / total activity
|setting up ($56,400/2,900)||$19.45|
b.assigning overhead cost to each product using ABC.
|product Z3||Product T1|
|machining ($1.30*6,800 ,7,000 MHS)||8,840||9,100|
|setting up ($19.45*1150, 1750 batches)||22,36750||34,037.50|
|total overhead assigned||31,207.50||43,137.50|
c.product margin using ABC.
|product Z3||product T1|
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