Deraney Corporation has an activity-based costing system with three activity cos

Question

Deraney Corporation has an activity-based costing system with three activity cost pools-Machining, Setting Up, and Other. The company's overhead costs have already been allocated to the cost pools and total $5,800 for the Machining cost pool, $4,700 for the Setting Up cost pool, and $7,500 for the Other cost pool. 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. Data concerning the two products appear below:

: a. Calculate activity rates for each activity cost pool using activity-based costing. b. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.

Explanation / Answer

Cost Pool Cost Cost Driver Overhead Rate Machining Cost 5800 Machine Hours 10000 0.58 ( 5800/10000) Setting Up Cost 4700 No of batches 1000 4.7 (4700/1000) The pverhead rate for machining cost is $ .58 per hour Setting up cost is $ 4.7 per batch Machine Hours Machine Cost Setting up batches Setting up overhead cost Total Product Z7 3800 2204 (3800*.58) 700 3290 (700*4.7) 5494 Product K9 6200 3596 (6200*.58) 300 1410 (300*4.7) 5006

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