Bass Corporation manufactures two products: A and B. The total indirect manufact

Question

Bass Corporation manufactures two products: A and B. The total indirect manufacturing overhead resource costs of $91,700 have been assigned to four activity cost pools that use the following cost drivers:


Product Number of Setups Machine Runs Packing Hours
Orders
Product A 40 70 2,000 150
Product B 20 140 3,000 250

Cost per Pool $7,500 $4,200 $60,000 $20,000

Required:

a. Compute the unit activity costs for each of the cost drivers listed.

b. Assign the overhead costs to products A and B using activity-based costing.

c. What is the total overhead cost for Product A and Product B?

Explanation / Answer

a.

First activity – uses number of setups:

Cost/number of setups = $7,500/60 setups = $125 per setup

Second activity – uses number of machine runs

Cost/number of machine runs = $4,200/210 machine runs = $20 per machine run

Third activity – uses packing hours

Cost/number of packing hours = $60,000/5,000 = $12 per packing hour

Fourth activity – uses orders

Cost/orders = $20,000/400 orders = $50 per order

b. Assigned to product A:

40 machine setups * $125 per setup = $5,000

70 machines runs*$20 per machine run =   $1,400

2,000 packing hours *$12 per packing hour = $24,000

150 orders*$50 per order = $7,500

Assigned to B:

20 machine setups*$125 per setup = $2,500

140 machine runs*$20 per machine run = $2,800

3,000 packing hour *$12 per packing hour = $36,000

250 orders *$50 per order = $12,500

c. Total for A = $5,000+ $1,400 + $24,000 + $7,500 = $37,900

Total for B = $2,500 + $2,800 + $36,000 + $12,500 = $53,800

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