In: Finance
Ollivier Corporation has an activity-based costing system with three activity cost pools-Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts, equipment expense and indirect labor, are allocated to the three activity cost pools based on resource consumption. Data used in the first stage allocations follow: |
Overhead costs: | |
Equipment expense | $53,000 |
Indirect labor | $6,400 |
Distribution of Resource Consumption Across Activity Cost Pools: |
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Activity Cost Pools |
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Processing | Supervising | Other | |
Equipment expense | 0.50 | 0.40 | 0.10 |
Indirect labor | 0.50 | 0.30 | 0.20 |
Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow: |
Activity: | ||
MHs (Processing) | Batches (Supervising) | |
Product C4 | 16,400 | 1,050 |
Product L7 |
1,390 |
1,250 |
Total |
17,790 |
2,300 |
What is the overhead cost assigned to Product L7 under activity-based costing? (Round your intermediate calculations to 2 decimal places and your final answer to nearest whole dollar.) |
$2,321
$14,884
$12,562
$24,862
Calculation of The overhead cost assigned to Product L7 under activity-based costing | ||||||
Step 1 | ||||||
Allocation of overhead costs to Processing and Supervising activity cost pools | ||||||
Overhead cost | Cost allocated to processing activity | Cost allocated to supervising activity | ||||
Equipment expense | $26,500.00 | $21,200.00 | ||||
Indirect Labour | $3,200.00 | $1,920.00 | ||||
Total overhead cost allocated | $29,700.00 | $23,120.00 | ||||
Step 2 | ||||||
Activity rate of Processing activity cost pool = Total overhead cost allocated to processing activity / Total no.of machine hours | ||||||
Activity rate of Processing activity cost pool = $29,700 / 17790 machine hours = $1.67 per machine hour | ||||||
Activity rate of Supervising activity cost pool = Total overhead cost allocated to supervising activity / Total no.of batches | ||||||
Activity rate of Supervising activity cost pool = $23120 / 2300 batches = $10.05 per batch | ||||||
Step 3 | ||||||
Overhead cost assigned to Product L7 under activity-based costing | ||||||
Product L7 | ||||||
Processing (1390 machine hours * $1.67) | $2,321 | |||||
Supervising (1250 batches * $10.05) | $12,563 | |||||
Total Overhead cost assigned to Product L7 | $14,884 | |||||
The overhead cost assigned to Product L7 under activity-based costing = $14,884 |