Question

Groleau Corporation has an activity-based costing system with three activity cost pools--Processing, Setting Up, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing cost pool are assigned to products based on machine-hour (MHs) and costs in the Setting Up cost pool are assigned to products based on the number of batches. Costs in the Other cost pom are not assigned to products. Data concerning the two products and the company's costs and activity-based costing system appe below Factory utilities (total) Indirect labor (total) $34,800 $12,400 Distribution of Resource Consumption Across Activity Cost Pools Processing Setting Up Other Factory utilities Indirect labor 0.20 0.50 0.30 0.40 0.50 0.10 МНs Batches Product S8 3,100 1,200 1,100 Product F1 7,300 10,400 2,300 Total Product Pl Product 58 Sales (total) $75,400 $27,600 $99,500 $ 35,600 Direct materials (total) Direct labor (total) $29,700 $ 42,700

Answer 1

A) Assigning overhead costs to Activity Cost Pools (Amounts in $)

	Activity Cost Pools
	Processing	Setting Up	Other	Total
Factory utilities	6,960 (34,800*0.20)	17,400 (34,800*0.50)	10,440 (34,800*0.30)	34,800
Indirect labor	4,960 (12,400*0.40)	6,200 (12,400*0.50)	1,240 (12,400*0.10)	12,400
Total	11,920	23,600	11,680	47,200

B) Calculation of Activity Rate (Amounts in $)

Activity Cost Pool	Activity Base	Allocated Cost (A)	Total Activity (B)	Activity Rate (A/B)
Processing	Machine Hours	11,920	10,400 hrs	1.15 per MH
Setting Up	Batches	23,600	2,300 Batches	10.26 per batch

C) Allocation of Overhead Cost to each product (Amounts in $)

	Product S8	Product F1
Processing	3,565 (1.15*3,100 hrs)	8,395 (1.15*7,300 hrs)
Setting Up	12,312 (10.26*1,200)	11,286 (10.26*1,100)
Total Overhead Cost	15,877	19,681

D) Calculation of Product Margin (Amounts in $)

	Product S8	Product F1
Total Sales	75,400	99,500
Product Costs:
Direct materials	(27,600)	(35,600)
Direct labor	(29,700)	(42,700)
Overhead cost	(15,877)	(19,681)
Product Margin	2,223	1,519