Question

Musich Corporation has an activity-based costing system with three activity cost pools--Machining, Setting Up, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.

                                                               Activity Cost Pools

	Machining		Setting Up			Other			Total
Equipment depreciation	$	9200		$	48,200		$	23,600		$	81,000
Indirect labor		4200			2800			4000			11,000
Total	$	13,400		$	51,000		$	27,600		$	92,000

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. Data concerning the two products and the company's costs appear below:

	MHs	Batches
Product Z3	5900	700
Product T1	6100	1300
Total	12,000	2000

                                                                                         Product Z3      Product T1

Sales (total)	$	228,800	$	254,500
Direct materials (total)	$	83,500	$	97,400
Direct labor (total)	$	109,800	$	104,700

Required:

Calculate the following:

Machining Activity Rate	$
Setting up Activity Rate	$
Amount of OH applied to product Z3 (round to the nearest dollar)	$
Amount of OH applied to product T1 (round to the nearest dollar)	$
Product Margin – Z3 (round to the nearest dollar)	$
Product Margin – T1 (round to the nearest dollar)	$

Answer 1

1.

Machining activity rate = Total overhead / Total machine hours

Machining activity rate = $13,400 / 12,000 = $1.12

Setting up activity rate = Total overhead / Total batches

Setting up activity rate = $51,000 / 2,000 = $25.5 per batch

2.

Overhead applied to Product Z3 = 5,900*$1.12 + 700*$25.5

Overhead applied to Product Z3 = $6,608 + 17,850 = $24,458

Overhead applied to Product T1 = 6,100*$1.12 + 1,300*$25.5

Overhead applied to Product T1 = $6,832 + 33,150 = $39,982

3.

	Product Z3	Product T1
Sales	$228,800	$254,500
Less: Direct material	83,500	97,400
Direct labor	109,800	104,700
Overhead applied	24,458	39,982
Product margin	$11,042	$12,418