The company is considering replacing its traditional costing system with an acti
ID: 2751804 • Letter: T
Question
The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs):
Estimated
Expected Activity
Activities and Activity Measures
Overhead Cost
Xtreme
Pathfinder
Total
Supporting direct labor (direct labor-hours)
$
693,100
43,500
76,000
119,500
Batch setups (setups)
539,000
290
200
490
Product sustaining (number of products)
640,000
1
1
2
Other
39,900
NA
NA
NA
Total manufacturing overhead cost
$
1,912,000
Compute the product margins for the Xtreme and the Pathfinder products under the activity-based costing system. (Negative product margins should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)
Xtreme
Pathfinder
Total
Product Margin
$
The company is considering replacing its traditional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools (the Other cost pool includes organization-sustaining costs and idle capacity costs):
Explanation / Answer
The following worksheet estimates the manufacturing overheads that should be assigned to the products ( Xtreme and Pathfinder) :
Note : Other Cost is allocated on the basis of no. of products as it is given in the question that it includes organization sustaining cost.
Activity A (in $) Relevant Cost Drivers B Activity Rate C=A/B (in $) Supporting Direct Labour 693,100 Direct Labour hours 119,500 5.8 Batch Set up 539,000 Set ups 490 1100 Product sustaining 640,000 No. of Products 2 320,000 others 39,900 No. of Products 2 19,950 Total 1,912,000