Question

Doede Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts--equipment depreciation and supervisory expense--to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below:

Overhead costs:

Equipment depreciation	$	103,000
Supervisory expense	$	13,100

Distribution of Resource Consumption Across Activity Cost Pools:

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

In the second stage, 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:

	MHs (Machining)	Orders (Order Filling)
Product W1	6,270	104
Product M0	18,800	984
Total	25,070	1,088

Finally, sales and direct cost data are combined with Machining and Order Filling costs to determine product margins.

Sales and Direct Cost Data:

	Product W1		Product M0
Sales (total)	$	73,700	$	67,500
Direct materials (total)	$	34,300	$	15,200
Direct labor (total)	$	18,000	$	34,800

What is the overhead cost assigned to Product W1 under activity-based costing?

Answer 1

	Distribution of Resource Consumption Across Activity Cost Pools:
	Activity Cost Pools
		Total	Machining	Workings	Order Filling	Workings	Other	Workings
	Equipment depreciation	103,000	61,800	(103,000 x 0.6/1)	20,600	(103,000 x 0.2/1)	20,600	(103,000 x 0.2/1)
	Supervisory expense	13,100	7,860	(13,100 x 0.6/1)	1,310	(13,100 x 0.1/1)	3,930	(13,100 x 0.3/1)
		116,100	69,660		21,910		24,530
	The overhead cost assigned to Product W1 under activity-based costing
		Product W1
	Machining	17,421.95	(69,660 x 6,270 ) /25,070
	Order Filling	2,094.34	(21,910 x 104 )/ 1,088
	Total	19,516.28