Question

Zwahlen Corporation has an activity-based costing system with three activity cost pools--Processing, Setting Up, and Other Costs in the Processing 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. Data concerning the two products and the company's costs and activity-based costing system appear below: Activity Cost Pools Processing Setting Up Other $59,600 $18.400 $30,400 Product D7 Product HO Total MHS 9,900 13,900 23,800 Batches 1,150 1,750 2,900 Sales (total) Direct materials (total) Direct labor (total) Product D7 Product HO $ 224,800 $ 310,600 $ 74,500 $ 147,100 $ 106,590 $ 98,100 Required: a. Calculate activity rates for each activity cost pool using activity-based costing. b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing. c. Determine the product margins for each product using activity-based costing. Complete this question by entering your answers in the tabs below.

Answer 1

Solution a:

Computation of Activity rates
Activity cost pool	Overhead costs	Total Cost driver		Activity Rate
Processing	$59,600	23800	MHs	$2.50
Setting up	$18,400	2900	Batches	$6.34

Solution b:

Computation of Overhead Assigned
		Product D7		Product H0
Activity cost pool	Activity Rate	Estimated Activity	Overhead Allocated	Estimated Activity	Overhead Allocated
Processing	$2.50	9900	$24,750	13900	$34,750
Setting up	$6.34	1150	$7,291	1750	$11,095
Total Overhead assigned			$32,041		$45,845

Solution c:

Computation of product margins
	Product D7	Product H0
Sales	$2,24,800	$3,10,600
Less: Costs
Direct materials	$74,500	$1,47,100
Direct labor	$1,06,590	$98,100
Overhead	$32,041	$45,845
Product margin	$11,669	$19,555