Question

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	$73,000
Indirect labor	$1,000

Distribution of Resource Consumption Across Activity Cost Pools:

	Processing	Supervising	Other
Equipment expense	20%	10%	70%
Indirect labor	20%	20%	60%

In the second stage, 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:

	MHs (Processing)	Batches (Supervising)
Product W3	7,600	100
Product H3	2,400	900
Total	10,000	1,000

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

	Product W3	Product H3
Sales (total)	$159,500	$154,100
Direct materials (total)	$66,300	$55,300
Direct labor (total)	$77,800	$84,100

A. How much overhead cost is allocated to the Supervising activity cost pool under activity-based costing first stage of allocation?

B. The activity rate for the Supervising activity cost pool (per batch) under activity-based costing is?

C. What is the overhead cost assigned to Product H3 under activity-based costing?

D. What is the product margin for Product H3 under activity-based costing?

Answer 1

a
	Processing	Supervising	Other	Total
Equipment expense	14600	7300	51100	73000
Indirect labor	200	100	600	900
Total	14800	7400	51700	73900
Overhead cost allocated to the Supervising activity	7400
b
Activity rate for the Supervising activity cost pool	7.40	=7400/1000
c
Activity rate for the Processing activity cost pool	1.48	=14800/10000
Product H3:
Processing	3552	=2400*1.48
Supervising	6660	=900*7.40
Overhead cost assigned to Product H3	10212
d
Sales (total)	154100
Less: Costs
Direct materials (total)	55300
Direct labor (total)	84100
Overhead cost assigned to Product H3	10212
Total costs	149612
Product margin for Product H3	4488