ACTIVITY BASED COSTING 6 ACTIVITY CENTERS, 6 POOL RATES

Assume that the company will use activity based costing to apply overhead. The company's accountant has assigned overhead costs to six activity centers. The cost driver for each activity center is shown in parentheses.

Activity Center Est. OH Expected Activity of the Cost Driver

(and Cost Driver) Cost Total Product X Product Y

Labor related $80,000 50,000 10,000 40,000 (DLH)

Machine setups 150,000 5,000 3,000 2,000 (# of setups) Product testing 160,000 8,000 5,000 3,000 (# of tests) Production orders 70,000 400 100 300 (# of orders) Material receipts 90,000 750 150 600 (# of receipts) General factory 250,000 40,000 12,000 28,000 (machine hours)

3. Calculate the POOL RATE for each of the activity centers and fill in the blanks

above.

Total OH Total Activity Pool Rate

Labor related $80,000 50,000

Machine setups 150,000 5,000

Product testing 160,000 8,000

Production orders 70,000 400

Material receipts 90,000 750

General factory 250,000 40,000

4. Using the Pool Rates that you calculated above, determine the amount of overhead

cost that should be assigned to each product. Complete the following table:

Low Volume High Volume

Product X Product Y

Activity Center Pool Expected OH Expected OH

(and Cost Driver) Rate Activity Cost Activity Cost

Labor related 10,000 40,000

(DLH)

Machine setups 3,000 2,000

(# of setups)

Product testing 5,000 3,000

(# of tests)

Production orders 100 300

(# of orders)

Material receipts 150 600

(# of receipts)

General factory 12,000 28,000

(machine hours)

Total overhead cost assigned: _________ _________

Number of units produced: _________ _________

Overhead cost per unit: _________ _________

(Product X) (Product Y)

5. Determined the unit cost for each product using ABC.

Product X Product Y

DM

DL

OH

Total Unit Cost