Question

Musich Corporation has an activity-based costing system with three activity cost pools--Machining, Setting Up, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below.

                                                               Activity Cost Pools

	Machining		Setting Up			Other			Total
Equipment depreciation	$	9400		$	48,700		$	23,800		$	81,900
Indirect labor		4500			2900			4100			11,500
Total	$	13,900		$	51,600		$	27,900		$	93,400

Costs in the Machining 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 appear below:

	MHs	Batches
Product Z3	6000	750
Product T1	6200	1350
Total	12,200	2100

                                                                                                                                    Product Z3      Product T1

Sales (total)	$	230,800	$	255,500
Direct materials (total)	$	84,000	$	97,600
Direct labor (total)	$	110,000	$	105,200

Required:

Calculate the following:

Machining Activity Rate	$
Setting up Activity Rate	$
Amount of OH applied to product Z3 (round to the nearest dollar)	$
Amount of OH applied to product T1 (round to the nearest dollar)	$
Product Margin – Z3 (round to the nearest dollar)	$
Product Margin – T1 (round to the nearest dollar)	$

Answer 1

Q-1. Machining Activity rate - Total Machining cost / Total Machine hours => 13,900 / 12,200 => $ 1.14 per hour

Q-2.Setting up Activity rate - Total Setting up cost / Total batches => 51,600 / 2,100 => $ 24.57 per batch

Q.3.Amount of over head applied to product Z3 -

Machining overhead cost - 6,000 hours x 1.14 per hour =>6,840 ; Setting up overhead cost - 750 batches x 24.57 per batch => 18,430 ; Total overhead cost applied to Z3 => 6,840 + 18,430 => $ 25,270

Q.4.Amount of over head applied to product T1 -

Machining overhead cost - 6,200 hours x 1.14 per hour =>7,060 ; Setting up overhead cost - 1,350 batches x 24.57 per batch => 33,170 ; Total overhead cost applied to Z3 => 7,060 + 33,170 => $ 40,230

Q.5.Product margin-Z3

Sales - 230,800 ; Total cost = Direct material + Direct labor + Overhead => 84,000 + 110,000 + 25,270 => 219,270 ; Product margin = Sales - Total cost => 11,530 (5 % of sales [Approximated])

Q.6.Product margin-T1

Sales - 255,500 ; Total cost = Direct material + Direct labor + Overhead => 97,600 + 105,200 + 40,230 => 243,030 ; Product margin = Sales - Total cost => 12,470 (4.88 % of sales [Approximated])

Note - Other cost have not been allocated to the products since specifically given not to assign.