Brisky Corporation uses activity-based costing to compute product margins. In th

Question

Brisky Corporation uses activity-based costing to compute product margins. In the first stage, the activity-based costing system allocates two overhead accounts-equipment depreciation and supervisory expense-to three activity cost pools - equipment depreciation and supervisory expense - to three activity cost popls - machining, order filling, and aother based on resource consumption. Overhead costs: Equipment depreciation = $22,000 Supervisory expense = $6,000 Distribution of Resource Consumption Across Activity Cost Pools: Activity Cost Pools Machining Order Filling Other Equipment depreciation 0.50 0.30 0.20 Supervisory expense 0.50 0.20 0.30 In the second stage, machining costs are assigned to products using machine-hours (MHs) and Order Filling costs are assigned to products using the number of orders. The costs in the Other activity cost pool are not assigned to products. Activity: MHs(Machining) Orders (order filling) Product 13 5,400 100 Product U8 14,600 900 Total 20,000 1,000 Finally sales and direct cost data are combined with machining and order filling costs to determine product margins. Sales and Direct Cost Data: Product I3 Product U8 Sales (total) $53,300 $60,100 Direct materials (total) $29,700 $14,000 Direct labor (total) $16,000 $25,300 The activity rate for the Machining activity cost pool under activity-based costing is closest to: a) $1.40 per MH b) $0.70 per MH c) $0.55 per MH d) $30.00 per MH Please show your calculations so I can see where I went wrong.

Explanation / Answer

Hi, Please find the calculations as follows: Equipment Expense 22000 Machining = 22000*.50 = 11000 Order Filling = 22000*.30 = 6600 Supervisory Expense 6000 Machining = 6000*.50 = 3000 Order Filling = 6000*.20 = 1200 = 11000+3000/20000 = .70 per machine hour = 3000+1200/1000 = 4.2 per order Overhead Cost I3 = 5400*.70 +100*4.2 = 4200 Product Margin = 53300 - 29700 - 16000 - 4200 = 3400

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