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 prop cost pools' consumption of resources. Equipment depreciation (total) Indirect labor (total) $ 34,400 $ 7,730 Distribution of Resource Consumption Across Activity Cost Pools Equipment depreciation Indirect labor Machining 2.30 2.40 Setting Up 2.30 0.28 Other 0.40 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. Product 54 Product ce MHS 14,780 5,300 20,eee Batches 780 1,500 2,200 Total Additional data concerning the company's products appears below. Sales (total) Direct materials (total) Direct labor (total) Product 54 $81,500 $ 25,800 $41,000 Product ce $ 69,000 $ 28,500 $ 25,800 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. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Assign overhead costs to activity cost pools using activity-based costing. Activity Cost Pools Machining Setting Up Other Total s Equipment depreciation Indirect labor Total

Answer 1

Answer :

a.assinging of ovberhead costs to activity cost pools based on activity based costing

Over Heads	Machining	Setting up	Other	Total
Equipment Depreciation	0.3	0.3	0.4	1
Indirect Labor	0.4	0.02	0.4	1

given over head costs as follwos:

Equipment Depreciation =$34,400

Indirect Labor =$7,730

Assinging these costs based on above given proportion to activity cost pools

Over Heads	Machining	Setting up	Other	Total
Equipment Depreciation	$10,320	$10,320	$13,760	$34,400
Indirect Labor	$3,092	$1,546	$3,092	$7,730
Total	$13,412	$11,866	$16,852	$42,130

b.calculating activity rates for each activity cost pool using activity cost based costing

from above overheads costs are as follows:

Over Heads	Machining	Setting up	Other
Equipment Depreciation	$10,320	$10,320	$13,760
Indirect Labor	$3,092	$1,546	$3,092
Total	$13,412	$11,866	$16,852

Total Machine Hours & number batches are as follows :

Products	Machine Hours(MHs)	Batch Numbers
Product S4	14,700	700
Product C0	5,300	1,500
Total	20,000	2,200

From above two tables

Total Machine Hours = 20,000 Hrs

Total Machining Costs =$13,412

Rate per Machine Hours =$13,412/20,000=0.6706 per MHs

Total Number of batches =2,200

Total Setting up cost=$11,866

Rate per batch=$11,866/2,200=5.3936 per batch

So activity rates are

Machine Hour Rate =0.6706 per hour

Batch Rate =5.3936 per batch

c.Assinging of over head costs to products :

Over head cost for products =Activity rate *Activity Hours /Batch numbers

Over Head Costs	Product S4	Product C0
Machining Costs :
Machine Hours	14,700	5,300
Rate per Hours	$0.6706	$0.6706
Costs =Hours * Rate (A)	$9,857.82	$3,554.18
Setting up cost
Batch Numbers	700	1,500
Rate per Batch	$5.3936	$5.3936
Costs =Batch Numbers*Rate(B)	$3,775.60	$8,090.40
Total Costs (A+B)	$13,633.42	$11,644.58

So Over head cost for Product S4=$13,633.42

  Over head cost for Product C0=$11,644.58

Note : As specifically mentioned in problem other cost pools are not assigned to Products

d.Determination of Product Margin using Activity Based Costing

Particulars	Product S4	Product C0
Sales	$81,500	$69,000
Total Revenue	$81,500	$69,000
Direct Materials	$25,800	$28,500
Direct Labor	$41,000	$25,800
Overhead costs (From C Part)	$13,633.42	$11,644.58
Total Expenses	$80,433.42	$65,944.58
Margin (Total Revenue -Total expenses)	$1,066.58	$3,055.42

Note : As specifically mentioned in problem other cost pools are not assigned to Products