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In: Finance

Ollivier Corporation has an activity-based costing system with three activity cost pools-Processing, Supervising, and Other. In...

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:

Activity Cost Pools

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

Solutions

Expert Solution

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

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