Question

# Musich Corporation has an activity-based costing system with three activity cost pools--Machining, Setting Up, and Other....

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 \$ 11,000 \$ 52,700 \$ 25,400 \$ 89,100 Indirect labor 6,900 3,700 4,900 15,500 Total \$ 17,900 \$ 56,400 \$ 30,300 \$ 104,600

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 6,800 1,150 Product T1 7,000 1,750 Total 13,800 2,900
 Product Z3 Product T1 Sales (total) \$ 246,800 \$ 263,500 Direct materials (total) \$ 88,000 \$ 99,200 Direct labor (total) \$ 111,600 \$ 109,200

Required:

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

 machining (\$17,900/13,800) \$1.30 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 sales 246,800 263,500 less:direct materials (88,000) (99,200) less:direct labour (111,600) (109,200) less:overhead assigned (31,207.50) (43,137.50) product margin 15,992.50 11,962.50

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