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)	$	35,600
Indirect labor (total)	$	7,350

Distribution of Resource Consumption Across Activity Cost Pools

	Machining	Setting Up	Other
Equipment depreciation	0.20	0.50	0.30
Indirect labor	0.30	0.30	0.40

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	13,000	1,200
Product C0	4,200	1,600
Total	17,200	2,800

Additional data concerning the company's products appears below:

	Product S4		Product C0
Sales (total)	$	93,800	$	72,400
Direct materials (total)	$	31,800	$	27,700
Direct labor (total)	$	37,200	$	26,900

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.

Answer 1

a.

	Activity Cost Pools
	Machining	Setting Up	Other	Total
Equipment depreciation	7120	17800	10680	35600
Indirect labor	2205	2205	2940	7350
Total $	9325	20005	13620	42950

b.

Activity Cost Pools	Activity Cost	Cost Driver Usage	Activity Rates
Machining	9325	17200	0.54	per machine hour
Setting Up	20005	2800	7.14	per batch

Note: Activity rates have been rounded off to 2 decimal places in the absence of specific instructions regarding rounding off. Kindly round off as required. This could cause the answers to differ. Do mention under comments in case you require any other rounding off or clarifications.

c.

Activity Cost Pools	Activity Rate	Product S4		Product C0
		Cost Driver	Overhead Cost Assigned	Cost Driver	Overhead Cost Assigned
Machining	0.54	13000	7020	4200	2268
Setting Up	7.14	1200	8568	1600	11424
Total			15588		13692

d.

	Product S4	Product C0
Sales	93800	72400
Less: Product costs
Direct materials	31800	27700
Direct labor	37200	26900
Machining	7020	2268
Setting Up	8568	11424
Total product costs	84588	68292
Product margins $	9212	4108