Question

Hugle Corporation's activity-based costing system has three activity cost pools-Machining, Setting Up, and Other. The company's overhead costs have already been allocated to these cost pools as follows:

Machining	$	15, 200
Setting up	$	44,800
Other	$	16,000

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. The following table shows the machine-hours and number of batches associated with each of the company's two products:

	MHs Batches
Product E8	2,000 800
Product V8	8,000 200
Total	10,000 1,000

Additional data concerning the company's products appears below:

		Product E8 Product V8
Sales (total)	$	220,700	$	165,500
Direct materials (total)	$	78,600	$	83,100
Direct labor (total)	$	89,600	$	58,000

Required:
a. Calculate activity rates for each activity cost pool using activity-based costing.(5 points)

b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing. (8 points)

c. Determine the product margins for each product using activity-based costing. (7 points)

Answer 1

a. Activity rates for each activity cost pool using activity-based costing
	MHs	Batches
Product E8	2,000	800
Product V8	8,000	200
1.Total	10,000	1,000
2.Total OH costs assigned	15200	44800
So, activity rate for each activity=Total OH costs/Total activity units(2/1)	1.52	44.8

b. Amount of overhead cost that would be assigned to each product using activity-based costing

	MHs		Batches		Total OH cost
Product E8	2000*1.52=	3,040	800*44.8=	35840	38,880
Product V8	8000*1.52=	12,160	200*44.8=	8960	21,120
		15,200		44,800	60,000

	Product E8	Product V8
Amt.of OH	38880	21120

c.Product margins for each product using activity-based costing
	Product E8	Product V8	Total
Sales (total)	220,700	165,500	386,200
Direct materials (total)	78,600	83,100	161,700
Direct labor (total)	89,600	58,000	147,600
Overheads	38880	21120	60,000
Total direct costs	207,080	162,220	369,300
Product margins(Sales-Total product costs)------(ANSWER)	13,620	3,280	16,900
Other costs(Unassigned)			16000
Net Margin			900