Hugle Corporation\'s activity-based costing system has three activity cost pools

Question

Hugle Corporation's activity-based costing system has three activity cost pools-Machining, Setting Up, and Other. The company's overhead costs have already been allocated to these cost pools as follows Machining Setting up Other $ 26,625 $ 92,232 $ 18,500 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. The following table shows the machine-hours and number of batches associated with each of the company's two products Product E8 Product V8 MHs Batches 2,370 1,000 8,280 830 Total 10,650 1,830 Additional data concerning the company's products appears below Sales (total) Direct materials (total) Direct labor (total) Product E8 Product V8 $ 268,000 $ 235,500 $ 86,800 $ 88,000 $ 96,000 $ 62,800

Explanation / Answer

a) Activity rate for each activity cost pool:

Machining up

= total cost of activity pool / total number of machine hours

= $26625/10650 hours = $2.50

Setting up

= total cost of activity pool / total number of batches

= $ 92232 / 1830 batch

= $50.40 / batch

b)

Machining cost to be assigned to product E8

= 2370 hours x activity rate

= 2370 hours x $2.50/hour

= $5925

Machining cost assigned to product V8

= 8280 hours x $2.50 / hour

= $20700

Setting up cost assigned to product E8

= activity rate x number of batches

= $50.40 x 1000

= $ 50400

Setting up cost assigned to product V8

= $50.40 x 830 batches

= $41832

c)

Note: the other overhead cost of $18500 has been assigned to the products on the basis of the direct labour cost.

for product E8: (96000/158800)*18500 = $11184

for product V8: (62800 / 158800) * 18500 = $7316

Cost product E8 $) product V8($) machining cost 5925 20700 setting up 50400 41832

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