Question

Lysiak Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs--equipment depreciation and supervisory expense-are allocated 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	$	47,000
Supervisory expense	$	6,000

Distribution of Resource Consumption Across Activity Cost Pools:

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

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 data for the company's two products follow:

Activity:

	MHs (Machining)	Orders (Order Filling)
Product C9	6,900	200
Product U0	3,100	800
Total	10,000	1,000

How much overhead cost is allocated to the Machining activity cost pool under activity-based costing in the first stage of allocation?

2.

	Activity Cost Pools
	Machining	Order Filling		Other
Equipment depreciation	0.40	0.10		0.50
Supervisory expense	0.20	0.30		0.50

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 J3	9,100	100
Product F7	900	900
Total	10,000	1,000

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

Sales and Direct Cost Data:

	Product J3		Product F7
Sales (total)	$	145,200	$	90,700
Direct materials (total)	$	81,400	$	38,600
Direct labor (total)	$	37,700	$	42,400

What is the product margin for Product F7 under activity-based costing?

Answer 1

Q1.
Total cost allocated to machining activity: $ 31800
Explanation:
Cost allocated to Machining Activity:
Equipment depreciation (47000*0.60)				28200
Supervisory expense (6000*0.60)				3600
Total cost allocated to machining				31800
Q2.
Cost allocation and activity rate
			Machining	Orderfilling	Others
Equip dep (0.4:0.1:0.5)			18800	4700	23500
Supervisory Expense (0.20:0.30:0.50)			1200	1800	3000
Total cost allocated			20000	6500	26500
Divide: Number of cost drivers			10000 MH	1000 orders
Activity rate			2 per MH	6.5 per order
Product margin of Product F7:;
Sales revenue				90700
Less: Cost
Direct material			38600
Directt Labour			42400
Machining activity OH		(900*2)	1800
Order filling activity OH		(900*6.50)	5850
Total Cost				88650
Net Profit margin of Product				2050