Question

3. Hugle Corporation's activity-based costing system has three activity cost pools-Machining, Setting Up, and Other. The company's overhead costs have already been allocated to these cost pools as follows: Machining....... Setting Up.... Other ................. $15,200 $44,800 16,000 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. The following table shows the machine-hours and number of batches associated with each of the company's two products: Product E8 Product V8...... Total. MHS Batches 800 8,000 200 10.000 1.000 Additional data concerning the company's products appears below: Product E8 Product V8 Sales (total).. $220,700 $165,500 Direct materials (total). $78,600 $83,100 Direct labor (total).. $89,600 $58,000 Required: a. Calculate activity rates for each activity cost pool using activity-based costing.(5 points) b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing. (8 points) c. Determine the product margins for each product using activity-based costing. (7 points)

Answer 1

	a) Activity rate as per activity-based costing
	Activity	Activity Cost	Total Activity hours/batches	Overhead cost per activity
	a	b	c	d=b/c
	Machining	$           15,200	10000 Hours	1.52	Per hour
	Setting Up	$           44,800	1000 batches	44.8	per batch
	Total	$           60,000
	b) The overhead cost would be assigned to each product using activity-based costing
		Product E8	Product V8	Total
a	Machine Hours	2000	8000	10000
b	Overhead rate per machine hour	$               1.52	$                                     1.52
c	Machinining Overhead (a*b)	$             3,040	$                                 12,160	$                                      15,200
d	Batches	800	200	1000
e	Overhead rate per batch	$             44.80	$                                   44.80
f	Setting up overhead (d*e)	$           35,840	$                                   8,960	$                                      44,800
g	Total overhead allocation (c+f)	$           38,880	$                                 21,120	$                                      60,000
	c)
	Product margin
		Product E8	Product V8
	sales	$       2,20,700	$                             1,65,500
	Less:
	Direct materials	$           78,600	$                                 83,100
	direct labors	$           89,600	$                                 58,000
	Overhead allocated	$           38,880	$                                 21,120
	Product margin	$           13,620	$                                   3,280