Addleman Corporation has an activity-based costing system with three activity co

Question

Addleman Corporation has an activity-based costing system with three activity cost 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 pools based on resource consumption. Data used in the first stage allocations follow:

Distribution of Resource Consumption Across Activity Cost Pools:

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:

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:

What is the overhead cost assigned to Product H3 under activity-based costing?

Overhead costs: Equipment expense $ 73,000 Indirect labor $ 1,000

Explanation / Answer

Overhead cost assigned to Product H3 under activity based costing: $ 10,302.

Workings:

First stage allocation of overhead cost to activity cost pools:

Activity Rates:

Overhead cost assigned to Product H3 = $ 1.48 x 2,400 MH + $ 7.50 x 900 = $ 10,302.

Processing Supervising Other Total Equipment Expense 14,600 7,300 51,100 73,000 Indirect Labor 200 200 600 1,000 Totals 14,800 7,500 51,700 74,000

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