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)	$	34,000
Indirect labor (total)	$	11,700

Distribution of Resource Consumption Across Activity Cost Pools

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

	MHs	Batches
Product S8	3,300	1,500
Product F1	7,900	700
Total	11,200	2,200

	Product S8			Product F1
Sales (total)	$	73,500		$	96,300
Direct materials (total)	$	22,000		$	37,100
Direct labor (total)	$	28,900		$	35,400

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) Assign overhead costs to activity cost pool

	Processing	Setting Up	Others	Total
Factory utilities	34000*30% = 10200	13600	10200	34000
Indirect labor	2340	3510	5850	11700
Total	12540	17110	16050	45700

b) Activity rate :

Activity	estimated overhead	estimated driver	Activity rate
Processing	12540	11200	1.12 per MH
Setting up	17110	2200	7.78 per batches

c) Overhead cost assigned to each product

	Product S8	Product F1
Processing	3696	8848
Setting up	11670	5446
Total	15366	14294

d) Product margin

		Product S8			Product F1
Sales (total)	$	73,500		$	96,300
Direct materials (total)	$	22,000		$	37,100
Direct labor (total)	$	28,900		$	35,400
Overhead		15366			14294
Product margin		7234			9506