Question

Greife 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	$	47,250
Setting Up	$	125,354
Other	$	21,600

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:

	MHs	Batches
Product K0	2,700	1,600
Product W9	8,550	730
Total	11,250	2,330

Additional data concerning the company's products appears below:

	Product K0		Product W9
Sales (total)	$	281,500	$	221,000
Direct materials (total)	$	74,500	$	83,400
Direct labor (total)	$	85,200	$	58,000

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.

Answer 1

a) Activity rate

	Activity rate
Machining (47250/11250)	4.20 per MH
Setting up (125354/2330)	53.80 per setup

b) Total amount of overhead

	Product K0	Product W9
Machining	11340	35910
Setting up	86080	39274
Total	97420	75184

c) Product margin

	Product K0		Product W9
Sales (total)	$	281,500	$	221,000
Direct materials (total)	$	74,500	$	83,400
Direct labor (total)	$	85,200	$	58,000
Overhead		97420		75184
Product margin		24380		4416