In: Accounting
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.
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 | ||