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In: Accounting

Groleau Corporation has an activity-based costing system with three activity cost pools--Processing, Setting Up, and Other....

Groleau Corporation has an activity-based costing system with three activity cost pools--Processing, Setting Up, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing 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. Data concerning the two products and the company's costs and activity-based costing system appear below: Factory utilities (total) $ 35,500 Indirect labor (total) $ 9,600 Distribution of Resource Consumption Across Activity Cost Pools Processing Setting Up Other Factory utilities 0.40 0.50 0.10 Indirect labor 0.40 0.20 0.40 MHs Batches Product S8 3,100 1,200 Product F1 7,800 1,000 Total 10,900 2,200 Product S8 Product F1 Sales (total) $ 79,500 $ 98,800 Direct materials (total) $ 26,400 $ 33,500 Direct labor (total) $ 36,200 $ 40,100 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.

Solutions

Expert Solution

a) Assigning Overhead Costs to Activity Cost Pools
Processing setting up others Total
Factory Utilities 14,200
($35,500 x 0.40)
$17,750
($35,500 x 0.50)
$3,550
($35,500 x 0.10)
$35,500
Indirect labour $3,840
($9,600 x 0.40)
$1,920
($9,600 x 0.20)
$3,840
($9,600 x 0.40)
$9,600
Total $18,040 $19,670 $7,390 $45,100
b) Activity rates for each activity cost pool:
Total cost Total activity Activity rate
Processing $18,040 10,900 MHs $1.66 per MHs
Setting up $19,670 2,200 batches $8.94 per batch
c) Overhead cost charged to product S8:
Activity rate Activity ABC cost
Processing $1.66 per MHs 3,100 MHs $5,146
Setting up $8.94 per batch 1,200 batches $10,728
Total overhead cost $15,874
Overhead cost charged to product F1:
Activity rate Activity ABC cost
Processing $1.66 per MHs 7,800 MHs $12,948
Setting up $8.94 per batch 1,000 batches $8,940
Total overhead cost $21,888
d) Determination of Product margins:
Product S8 Product F1
Sales $79,500 $98,800
Direct material ($26,400 ) ($33,500)
Direct labour ($36,200) ($40,100)
Processing ($5,146) ($12,948)
Setting up ($10,728) ($8,940)
Product margin $1,026 $3,312

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