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.

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

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