Question

4) X Company makes two products, A and B, and uses an activity-based costing overhead allocation system, with three cost pools and three cost drivers. Budgeted costs and driver information for 2017 were as follows: Cost Pool 1 Cost Pool 2 Cost Pool 3 Budgeted costs $113,000 $53,000 $31,000 Cost Drivers Product A 84,000 62,000 75,000 Product B 63,000 54,000 47,000

What was the allocation to Product B in 2017?

Answer 1

	CALCULATION OF THE TOTAL COST DRIVERS	For Prdocut A	For Prdocut B	Total
	Cost Drivers 1	84,000	63,000	1,47,000
	Cost Drivers 2	62,000	54,000	1,16,000
	Cost Drivers 3	75,000	47,000	1,22,000
	Step 1: Calculation of the Cost Driver Rate
	Cost Driver Rate = Activity Cost / Cost Driver
			Activity Cost / Cost Driver =
	Activity	Cost Driver	Activity Cost	"/"	Cost Driver	" = " To	Cost Driver Rate
	Cost Pool 1	Cost Driver 1	$                     1,13,000	"/"	$               1,47,000	" = " To	$                      0.77
	Cost Pool 2	Cost Driver 2	$                         53,000	"/"	$               1,16,000	" = " To	$                      0.46
	Cost Pool 3	Cost Driver 3	$                         31,000	"/"	$               1,22,000	" = " To	$                      0.25
	Step 2: Calculation of the Cost allocation for Product B
	Activity	Product	Cost Driver Used	"X " By	Cost Driver Rate	" = " To	Activity Cost as per Service Department
	Cost Pool 1		Cost Driver 1
		Product B	63,000	"X " By	$                        0.77	" = " To	$                 48,429
	Cost Pool 2		Cost Driver 2
		Product B	54,000	"X " By	$                        0.46	" = " To	$                 24,672
			Cost Driver 3
	Cost Pool 3	Product B
			47,000	"X " By	$                        0.25	" = " To	$                 11,943
	TOTAL COST ALLOCATION FOR PRODCUT B						85,043.61