Question

Howell Corporation's activity-based costing system has three activity cost pools--Machining, Setting Up, and Other. The company's...

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

Homework Answers

Answer #1

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

Machining Setup Other Total
Equipment depreciation (total) 8820 5880 14700 29400
Indirect labour 3690 2214 1476 7380
Total 12510 8094 16176 36780

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

Activity cost pool activity rate
Machining (12510/15600) 0.802 per machine hour
Setup (8094/2000) 4.047 per setup

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

Amount of overhead cost
Product S4 (12000*.802+200*4.047) = 10433
Product C0 (3600*.802+1800*4.047) = 10171

d) Calculate product margin

Product S4 Product C0
Sales 80600 74300
Direct material 25400 29300
Direct labour 37000 32900
Overhead 10433 10171
Product margin 7767 1929
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