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)	$	29,200
Indirect labor (total)	$	9,500

Distribution of Resource Consumption Across Activity Cost Pools

	Processing	Setting Up	Other
Factory utilities	0.30	0.30	0.40
Indirect labor	0.30	0.50	0.20

	MHs	Batches
Product S8	3,200	1,100
Product F1	7,200	500
Total	10,400	1,600

	Product S8			Product F1
Sales (total)	$	66,200		$	94,100
Direct materials (total)	$	19,800		$	36,600
Direct labor (total)	$	26,900		$	43,800

Required:

a. Assign overhead costs to activity cost pools using activity-based costing.

b. Calculate activity rates for each activity cost pool using activity-based costing.

c. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

d. Determine the product margins for each product using activity-based costing.

Answer 1

a
	Processing	Setting Up	Other	Total
Factory utilities	8760	8760	11680	29200
Indirect labor	2850	4750	1900	9500
Total	11610	13510	13580	38700
b
Processing	1.12	per MH	=11610/10400
Setting Up	8.44	per Batch	=13510/1600
c
	Amount of overhead costs
Product S8	12868	=(3200*1.12)+(1100*8.44)
Product F1	12284	=(7200*1.12)+(500*8.44)
d
	Product S8	Product F1
Sales	66200	94100
Less: Costs
Direct materials	19800	36600
Direct labor	26900	43800
Overhead	12868	12284
Total costs	59568	92684
Product margin	6632	1416