Question

Groleau Corporation has an activity-based costing system with three activity cost pools: Processing, Setting Up, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing 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 and activity-based costing system appear below: Factory utilities (total) Indirect labor (total) $ 24,000 $ 3,000 Distribution of Resource Consumption Across Activity Cost Pools Processing Setting Up Other Factory utilities 0.30 0.40 0.30 Indirect labor 0.10 0.40 0.50 Product S8 Product F1 Total MHS 2,200 7,800 10,000 Batches 700 300 1,000 Number of Units Sales (total) Direct materials (total) Direct labor (total) Product S8 1,000 $64,000 $28,000 $25,300 Product F1 500 $68,700 $19,800 $36,700 Required: a. Assign overhead costs to activity cost pools using activity-based costing. (First-Stage allocation). (Show your computations). b. Calculate activity rates for each activity cost pool using activity-based costing. (Show your computations) c. Determine the unit product cost of each product using the activity-based costing. (Show your computations).

Answer 1

Answer a:

First Stage Allocation: Overhead Factory Utilities Indirect labor Overhead cost $24,000 $3,000 Resourse consumption of Activity Cost pool Assignment of OH cost to Activity Cost pool Processing Setting Up Other Processing Setting Up Other 0.30 0.40 0.30 $7,200 $9,600 $7,200 0.10 0.40 0.50 $300 $1,200 $1,500 Total $7,500 $10,800 $8,700

Answer b:

Activity Cost pool Processing Setting Up Other Total Cost driver quantity Cost Cost Drivers Product S8 Product F1 Total $7,500 MH 2,200 7,800 $10,800 Batches 700 300 $8,700 $27,000 NOT ALLOCATED 10,000 1,000 Activity Rate $0.75 $10.80

Answer c:

First let us assign activity costs to Products based on activity rates:

Activity Cost pool Processing Setting Up Cost driver quantity Activity Rate Cost Drivers Product S8 Product F1 Total $1 MH 2,200 7,800 $11 Batches 300 Total 10,000 1,000 Cost assigned to Product S8 Product F1 $1,650.00 $5,850.00 $7,560.00 $3,240.00 $9,210.00 $9,090.00 700

Unit cost of product Product 58 1,000 Product F1 500 Number of units Direct material Direct labor Overhead costs based on ABC Total cost of production (CP) $28,000 $25,300 $9,210 $62,510 $19,800 $36,700 $9,090 $65,590 Number of units (U) 1,000 500 Unit cost of product (CP/U) $62.51 $131.18