54) Somani C orporation has an activity-based costing system with three activity

Question

54) Somani C orporation has an activity-based costing system with three activity cost pools-Machin etting Up, and Other. The company's overhead costs, which consist of equipment depreciation a ve been allocated to the cost pools already and are provided in the table below Activity Cost Pools Machining Setting Up Other Total $54,000 $9,000 $27,000 $90,000 Indirect labor Total s$4.300 $11.100 7.600 S93.000 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: MHs Batches 300 5300 1700 10,000 2.000 4,700 Product M8. Product K3 Total!. Sales (total) Direct materials (total).. Direct labor (total).... Product M8 Product K3 $220,500 $318,900 $109,000 $130,300 $76,100 $141,200 Required: ate activity rates for each activity cost pool using activity-based costing. ermine the amount of overhead cost that would be assigned to each product using activity-based costing c. Determine ine the product margins for each product using activity-based costing. 14

Explanation / Answer

a. Computation of Activity Rates :

b. Overhead cost to be assigned to products under ABC :

c. Computation of Product Margins:

Cost Pool Cost Cost Driver Volume of Cost Driver Activity Rate $ Machining 54,300 Machine Hours 10,000 machine hours $ 5.43 per machine hour Setup 11,100 Number of Batches 2,000 batches $ 5.55 per batch

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