Matis Corporation\'s activity-based costing system has three activity cost pools
ID: 2456227 • Letter: M
Question
Matis Corporation's activity-based costing system has three activity cost pools-Fabricating, Setting Up, and Other. Costs in the Fabricating 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. The activity rate for Fabricating is $1.08 per MH; the activity rate for Setting Up is $5.20 per batch. The following table shows the machine-hours and number of batches associated with each of the company's two products:
2000
Required: Determine the amount of overhead cost that would be assigned to each product using activity based costing.
Machine Hours Batches H5 7000 200 L1 13000 1800 Total 200002000
Explanation / Answer
Amounts of overhead cost for each product using activity based costing:
1. Overhead cost for fabricating:
Product Machine hours(MHs) Rate per MH Overhead cost
H5 7000 hrs $ 1.08 $ 7,560
L1 13000 hrs $ 1.08 $ 14,040
Total Overhead cost for fabricating = $ 21,600
2. Overhead cost for Setting up:
Product Batches Rate per batch Overhead cost
H5 200 $ 5.20 $ 1,040
L1 1,800 $ 5.20 $ 9,360
Total overhead cost for setting up = $ 10,400
3. Overhead cost assigned to product H5 = 7,560 +1,040 = $ 8,600
4. Overhead cost assigned to product L1 = 14,040 + 9,360 = $ 23,400