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) Indirect labor (total) $27.300 $ 7.510 Distribution of Resource Consumption Across Activity Cost Pools Equipment depreciation reciation Indirect labor Machining 0.50 0.40 Setting Up Other 0.20 0.30 0.30 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. Product 54 Product Co Total MHS 10,700 3,800 14,500 Batches 1,000 1,200 2,200 Additional data concerning the company's products appears below: Sales (total) Direct materials (total) Direct labor (total) Product S4 $90,300 $31,500 $37,400 Product Co $ 65,500 $ 26,300 $ 27,200

Answer 1

Solution a:

First stage allocation of cost to activity cost pools
Particulars	Total Cost	Machining		Setting up		Other
		%	Amount	%	Amount	%	Amount
Equipment Depreciation	$27,300	50%	$13,650	20%	$5,460	30%	$8,190
Indirect labor	$7,510	40%	$3,004	30%	$2,253	30%	$2,253
Total	$34,810		$16,654		$7,713		$10,443

Solution b:

Determination of activity rate for each activity
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate
					Machining	$16,654	Machine hours	14500	$1.15
Setting up	$7,713	Number of Batches	2200	$3.51
Others	$10,443

Solution c:

Overhead assigned to Each Product
		Product S4		Product C0
Particulars	Activity Rate	Activity usage	Overhead assigned	Activity usage	Overhead assigned
Machining	$1.15	10700	$12,305	3800	$4,370
Setting up	$3.51	1000	$3,510	1200	$4,212
Overhead assigned to Each Product			$15,815		$8,582

Solution d:

Computation of Product Margins
Particulars	Product S4	Product C0
Sales	$90,300	$65,500
Costs:
Direct materials	$31,500	$26,300
Direct labor	$37,400	$27,200
Overhead	$15,815	$8,582
Customer Margin	$5,585	$3,418