Ollivier Corporation has an ac
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Ollivier Corporation has an activity-based costing system withthree activity cost pools-Processing, Supervising, and Other. Inthe first stage allocations, costs in the two overhead accounts,equipment expense and indirect labor, are allocated to the threeactivity cost pools based on resource consumption. Data used in thefirst stage allocations follow: |
| Overhead costs: | |
| Equipmentexpense | $53,000 |
| Indirect labor | $6,400 |
| Distribution of Resource Consumption Across ActivityCost Pools: | |||
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Activity Cost Pools |
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| Processing | Supervising | Other | |
| Equipmentexpense | 0.50 | 0.40 | 0.10 |
| Indirect labor | 0.50 | 0.30 | 0.20 |
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Processing costs are assigned to products using machine-hours(MHs) and Supervising costs are assigned to products using thenumber of batches. The costs in the Other activity cost pool arenot assigned to products. Activity data for the company’s twoproducts follow: |
| Activity: | ||
| MHs(Processing) | Batches(Supervising) | |
| Product C4 | 16,400 | 1,050 |
| Product L7 |
1,390 |
1,250 |
| Total |
17,790 |
2,300 |
|
What is the overhead cost assigned to Product L7 underactivity-based costing? (Round your intermediatecalculations to 2 decimal places and your final answer to nearestwhole dollar.) |
$2,321
$14,884
$12,562
$24,862
Answer:
| Calculation of The overhead cost assigned to Product L7 underactivity-based costing | ||||||
| Step 1 | ||||||
| Allocation of overhead coststo Processing and Supervising activity cost pools | ||||||
| Overhead cost | Cost allocated to processing activity | Cost allocated to supervisingactivity | ||||
| Equipment expense | $26,500.00 | $21,200.00 | ||||
| Indirect Labour | $3,200.00 | $1,920.00 | ||||
| Total overhead costallocated | $29,700.00 | $23,120.00 | ||||
| Step 2 | ||||||
| Activity rate of Processingactivity cost pool = Total overhead cost allocated to processingactivity / Total no.of machine hours | ||||||
| Activity rate of Processingactivity cost pool = $29,700 / 17790 machine hours = $1.67 permachine hour | ||||||
| Activity rate of Supervisingactivity cost pool = Total overhead cost allocated to supervisingactivity / Total no.of batches | ||||||
| Activity rate of Supervisingactivity cost pool = $23120 / 2300 batches = $10.05 per batch | ||||||
| Step 3 | ||||||
| Overhead cost assigned toProduct L7 under activity-based costing | ||||||
| Product L7 | ||||||
| Processing (1390 machine hours *$1.67) | $2,321 | |||||
| Supervising (1250 batches * $10.05) | $12,563 | |||||
| Total Overhead cost assigned toProduct L7 | $14,884 | |||||
| The overhead costassigned to Product L7 under activity-based costing =$14,884 | ||||||
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