Question

Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools--Processing, Supervising, and Other. The costs in those activity cost pools appear below:

Processing	$	5,170
Supervising	$	31,640
Other	$	11,900

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 appear below:

	MHs (Processing)	Batches (Supervising)
Product M0	10,400	700
Product M5	600	700
Total	11,000	1,400

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

	Product M0		Product M5
Sales (total)	$	84,700	$	97,400
Direct materials (total)	$	30,000	$	32,900
Direct labor (total)	$	29,300	$	43,200

What is the overhead cost assigned to Product M5 under activity-based costing?

2.  

Meester Corporation has an activity-based costing system with three activity cost pools--Machining, Order Filling, and Other. In the first stage allocations, costs in the two overhead accounts, equipment depreciation and supervisory expense, are allocated to three activity cost pools based on resource consumption. Data used in the first stage allocations follow:

Overhead costs:

Equipment depreciation	$	87,000
Supervisory expense	$	9,400

Distribution of Resource Consumption Across Activity Cost Pools:

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.60	0.30		0.10
Supervisory expense	0.60	0.20		0.20

Machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow:

Activity:

	MHs (Machining)	Orders (Order Filling)
Product M0	1,510	1,030
Product H2	9,030	2,250
Total	10,540	3,280

The activity rate for the Order Filling activity cost pool under activity-based costing is closest to:

Answer 1

Answer:

1)

Processing Activity Based rate per MH = $ 5,170 / 11,000 = $ 0.47

Supervising Activity Based rate per batch = $ 31,640 / 1,400 = $ 22.60

Processing Activity Based Cost for Product M5   = $ 0.47 x 600 = $ 282

Supervising Activity Based Cost for Product M5 = $ 22.60 x 700 = $ 15,820

Total overhead cost = $ 282 + $ 15,820 =   $ 16,102

Overhead cost assigned to Product M5 under activity-based costing   = $ 16,102

2)

Equipment depreciation allocated to Order Filling                = $ 87,000 x 0.30                 =   $ 26,100

Supervisory expense allocated to Order Filling                = $ 9,400 x 0.20                 =   $ 1,880

Total overhead Cost = $ 26,100 + $ 1,880   = $ 27,980

Order filling Activity rate =   Total overhead Cost / Total Orders                                                       =   $ 27,980 / 3,280                                                       =    $ 8.53

Order filling Activity rate     =    $ 8.53