Activity-based costing - Review Lake Corporation has an activity-based costing s

Question

Activity-based costing - Review Lake Corporation has an activity-based costing system with three activity costs 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: Overhead costs: Distribution of resouree consumption across activity cost pools: Processing 0.40 0.30 Activity Cost Pools Supervising 0.20 0.50 Other 0.40 0.20 Equipment expense Indirect labor 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: MHs (Processing) Batches (Supervising) Product R4 Product L2 Total 6,800 13.200 20,000 400 600 1,000 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: Product R4 $234,600 $81,100 $116,600 Product $269,600 $120,200 $93,200 Sales (total) Direct materials (total Direct labor (total) Required 1. Assign overhead costs to the activity cost pools. (First-stage allocation). 2. Calculate the activity rates for the activity cost pools. 3. Assign overhead costs to each product. Prepare a product margin report showing the product margin of each product.

Explanation / Answer

Solution 1:

Solution 2& 3:

Solution 4:

First stage allocation of cost to activity cost pools Particulars Total Cost Processing Supervising Others % Amount % Amount % Amount Equipment Expense $96,000.00 40% $38,400.00 20% $19,200.00 40% $38,400.00 Indirect labor $4,000.00 30% $1,200.00 50% $2,000.00 20% $800.00 Total $100,000.00 $39,600.00 $21,200.00 $39,200.00

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