Question

31. Houseal Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool	Total Cost		Total Activity
Assembly	$	613,250	55,000	machine-hours
Processing orders	$	46,170	1,500	orders
Inspection	$	146,110	1,900	inspection-hours

Data concerning one of the company's products, Product W58B, appear below:

Selling price per unit	$	113.70
Direct materials cost per unit	$	48.14
Direct labor cost per unit	$	11.62
Annual unit production and sales		360
Annual machine-hours		1,040
Annual orders		60
Annual inspection-hours		30

According to the activity-based costing system, the product margin for product W58B is:

2. 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	$	92,000
Supervisory expense	$	4,000

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	0.30	0.20		0.50

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	4,200	800
Product M0	15,800	200
Total	20,000	1,000

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)	$	236,500	$	262,000
Direct materials (total)	$	90,900	$	123,900
Direct labor (total)	$	110,400	$	76,100

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

3. In time-based activity-based costing, the practical capacity percentage is an estimate of the company’s capacity in relation to its closest competitor. true or false

Answer 1

Answer 1
Computation of product margin for Product W58B
Sales [$113.70 *360 units]		$40,932.00
Less : Product costs
- Direct Materials [$48.14 * 360 units]	$17,330.40
- Direct Labor [$11.62 * 360 units]	$4,183.20
- Overhead costs
Assembly [$11.15 * 1040 machine hours]	$11,596.00
Processing order [$30.78 * 60 orders]	$1,846.80
Inspection [$76.90 * 30 inspection hours]	$2,307.00
Total Product Costs		$37,263.40
Product Margin for Product W58B		$3,668.60
Working
Calculation of activity rates
Assembly activity = Total cost / no.of machine hours = $613250 / 55000 machine hours = $11.15 per machine hour
Processing order activity = Total cost / no.of orders = $46,170 / 1500 orders = $30.78 per order
Inspection activity = Total cost / no.of inspection hours = $146110 / 1900 inspection hours = $76.90 per inspection hour
Answer 2
Determination of activity rate for the Machining activity cost pool under activity-based costing
Stage 1
Allocation of overhead costs among machining activity
	Machining
Equipment depreciation [$92000 * 60%]	$55,200.00
Supervisory Expenses [$4000 * 30%]	$1,200.00
Total Overhead cost of Machining activity	$56,400.00
Stage 2
Activity rate of Machining activity = Total Overhead cost / Total machine hours
Activity rate of Machining activity = $56,400 / 20000 machine hours = $2.82 per machine hour
Answer 3
The answer is False.