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(LO 3) A company uses activity-based costing to determine the costs of its three products: A,...

(LO 3) A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:

Budgeted Activity
Activity Cost Pool Budgeted Cost Product A Product B Product C
Activity 1 $ 89,000 7,900 10,900 21,900
Activity 2 $ 64,000 8,900 16,900 9,900
Activity 3 $ 120,000 4,400 2,900 3,525


How much overhead will be assigned to Product B using activity-based costing?

Solutions

Expert Solution

Overhead applied on product B = $86,280.11 or 86,280.........(depending on roundoff)

Working

Calculation of Activity rates
Activity Cost Pool Activity driver Overhead Cost (A) Expected Activity (B) Activity rate (A/B)
Activity 1 Number of Activity usage $        89,000.00 40700 $               2.19 Per Activity usage
Activity 2 Number of Activity usage $        64,000.00 35700 $               1.79 Per Activity usage
Activity 3 Number of Activity usage $      120,000.00 10825 $             11.09 Per Activity usage
Cost assigned to Product B
Activity name Activity Rates Activity ABC Cost
(A) (B) (A x B)
Activity 1 $                       2.19 10900 $         23,835.38
Activity 2 $                       1.79 16900 $         30,296.92
Activity 3 $                     11.09 2900 $         32,147.81
Total Overheads assigned $         86,280.11

ekkarill92 answered 4 months ago
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