Lysiak Corporation uses an activity based costing system to assign overhead cost
ID: 2333362 • Letter: L
Question
Lysiak Corporation uses an activity based costing system to assign overhead costs to products. In the first stage, two overhead costs--equipment depreciation and supervisory expense-are allocated to three activity cost pools--Machining, Order Filling, and Other--based on resource consumption. Data to perform these allocations appear below:
Distribution of Resource Consumption Across Activity Cost Pools:
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 data for the company's two products follow:
Activity:
How much overhead cost is allocated to the Machining activity cost pool under activity-based costing in the first stage of allocation?
2.
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 data for the company's two products follow:
Activity:
Finally, the costs of Machining and Order Filling are combined with the following sales and direct cost data to determine product margins.
Sales and Direct Cost Data:
What is the product margin for Product F7 under activity-based costing?
Overhead costs: Equipment depreciation $ 47,000 Supervisory expense $ 6,000Explanation / Answer
Q1. Total cost allocated to machining activity: $ 31800 Explanation: Cost allocated to Machining Activity: Equipment depreciation (47000*0.60) 28200 Supervisory expense (6000*0.60) 3600 Total cost allocated to machining 31800 Q2. Cost allocation and activity rate Machining Orderfilling Others Equip dep (0.4:0.1:0.5) 18800 4700 23500 Supervisory Expense (0.20:0.30:0.50) 1200 1800 3000 Total cost allocated 20000 6500 26500 Divide: Number of cost drivers 10000 MH 1000 orders Activity rate 2 per MH 6.5 per order Product margin of Product F7:; Sales revenue 90700 Less: Cost Direct material 38600 Directt Labour 42400 Machining activity OH (900*2) 1800 Order filling activity OH (900*6.50) 5850 Total Cost 88650 Net Profit margin of Product 2050
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