Problem:
Murri Corporation has an activity-based costing system with three activity cost pools-Processing, Setting Up, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing 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 and activity-based costing system appear below:
factory utilities (total) $29,000
indirect labor (total) $7,000
Distribution of resource consumption across activity cost pool
processing setting up other
factory utilities 0.40 0.10 0.50
indirect labor 0.50 0.20 0.30
MHs Batches
product X7 2,900 700
product L4 7,100 300
Total..... 10,000 1,000
Product X7 Product L4
sales (total) $54,000 $85,000
direct materials (total) $19,100 $33,500
direct labor (total) $26,300 $35,000
Required to do:
Q1. Assign overhead costs to activity cost pools using activity-based costing.
Q2. Calculate activity rates for each activity cost pool using activity-based costing.
Q3. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
Q4. Determine the product margins for each product using activity-based costing.