Somani Corporation has an activity-based costing system with three activity cost

Question

Somani Corporation has an activity-based costing system with three activity cost pools-Machining, Setting Up, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, have been allocated to the cost pools already and are provided in the table below. 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 and the company's costs appear below: Required: 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. c. Determine the product margins for each product using activity-based costing.

Explanation / Answer

a)

c)

Activity Cost Number of actiivty Cost per activity Machining 54300 10000 54300/10000 =$ 5.43per MH Set up 11100 2000 11100/2000 = $ 5.55 per Batch

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