1. Assign overhead costs to the activity cost pools. 2. Calculate the activity r
ID: 2511805 • Letter: 1
Question
1. Assign overhead costs to the activity cost pools. 2. Calculate the activity rates for the activity cost pools. 3. Assign overhead costs to each product. Activity-based costing-Review Lake Corporation has an activity-based costing system with three activity costs pools Processing, Supervising, and Other. In the first stage allocations, costs in the two overhead accounts - equipment expense and indirect labor- are allocated to the three activity cost poolts based on resource consumption. Data used in the first stage allocations fllow Overhead costs: Equipment expense Indirect labor . $96,000 $4,000 . . Distribution of resource consumption across activity cost pools: Activity Cost Pools Processing 0.40 0.30 Other 0.40 0.20 Equipment expense 0.20 0.50 Indirect labor Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data for the company's two products follow Activity: Batches (Supervising) 400 600 1,000 MHs Product R4 Product L2 Total 6,800 13,200 20,000 Finally, the costs of Processing and Supervising are combined with the following sales and direct cost data to determine product margins Sales and direct cost data: Sales (total) Direct materials (total Direct labor (total) Product R4 $234,600 $81,100 $116,600 L2 $269,600 $120.200 $93,200 Required: 1. Assign overhead costs to the activity cost pools. (First-stage allocation). 2. Calculate the activity rates for the activity cost pools. 3. Assign overhead costs to each product. 4. Prepare a product margin report showing the product margin of each productExplanation / Answer
Solution:
Part 1 – First Stage Allocation – Assignment of Overhead Costs to the activity cost pools
Processing
Supervising
Other
Total
Equipment expense
$38,400
$19,200
$38,400
$96,000
Indirect labor
$1,200
$2,000
$800
$4,000
Total
$39,600
$21,200
$39,200
$100,000
Part 2 – Activity Rates for the activity cost pools
Activity Cost Pool
Expected Manufacturing Overhead Costs (A)
Expected Activity Cost Driver (B)
Activity Rate (C = A/B)
Processing
$39,600
20000
Machine Hours
$1.98
per MH
Supervising
$21,200
1,000
Batches
$21.20
per batch
Other
$39,200
$100,000
Part 3 – Assign Overhead Costs to each product
Product R4
Product I.2
Activity Cost Pool
Activity Rate (C)
Activity Driver USAGE (H)
Overhead Assigned (C*H)
Activity Driver USAGE (E)
Overhead Assigned (C*E)
Processing
$1.98
per MH
6800
$13,464.00
13200
$26,136.00
Supervising
$21.20
per batch
400
$8,480.00
600
$12,720.00
Other
$0.00
$0.00
$21,944.00
$38,856.00
Part 4 – Product Margin Report
Product R4
Product I.2
Sales
$234,600
269600
Total Cost:
Direct materials
$81,100
$120,200
Direct Labor
$116,600
$93,200
Assigned Overhead Cost
$21,944
$38,856
Total Cost
$219,644
$252,256
Profit Margin (Sales - Total Cost)
$14,956
$17,344
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Processing
Supervising
Other
Total
Equipment expense
$38,400
$19,200
$38,400
$96,000
Indirect labor
$1,200
$2,000
$800
$4,000
Total
$39,600
$21,200
$39,200
$100,000
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