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# Activity-based costing system.

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Murri Corporation has an activity-based costing system with three activity cost pools-Processing, Setting Up, and Other. The company's overhead costs, which consist of factory utilities and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources. Costs in the Processing 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. Data concerning the two products and the company's costs and activity-based costing system appear below:

factory utilities (total) \$29,000
indirect labor (total) \$7,000

Distribution of resource consumption across activity cost pool

processing setting up other
factory utilities 0.40 0.10 0.50
indirect labor 0.50 0.20 0.30

MHs Batches
product X7 2,900 700
product L4 7,100 300
Total..... 10,000 1,000

Product X7 Product L4
sales (total) \$54,000 \$85,000
direct materials (total) \$19,100 \$33,500
direct labor (total) \$26,300 \$35,000

Required:

a. Assign overhead costs to activity cost pools using activity-based costing.
b. Calculate activity rates for each activity cost pool using activity-based costing.
c. Determine the amount of overhead cost that would be assigned to each product using activity-based costing.
d. Determine the product margins for each product using activity-based costing.

#### Solution Summary

Activity-based costing systems are examined for Murri Corporation. The activity cost for pools-processing is determined.

\$2.19

## Compute the activity rates, activity-based costing system, traditional costing system

Huddleston Housecleaning provides housecleaning services to its clients. The company uses an activity-based costing system for its overhead costs. The company has provided the following data from its activity-based costing system.

Activity Cost Centers Overhead Cost Allocation Base/Cost Driver
Cleaning \$645,576 72,700 hours
Job support \$129,546 5,400 jobs
Client support \$ 20,900 760 clients
Other \$110,000 Not applicable
Total \$906,022

The "Other" activity cost center consists of the costs of idle capacity and organization-sustaining costs. Do not allocate these costs to the jobs.

One particular client, the Lumbard family, requested 31 jobs during the year that required a total of 62 hours of housecleaning. For this service, the client was charged \$1,620

Required:
a. Compute the activity rates (i.e., cost per unit of activity) for the 3 activity cost centers. Round all calculations to the nearest whole cent.
b. Using the activity-based costing system, compute the customer margin for the Lumbard family client. (Note that the Lumbard family is one of 760 clients.) Round all calculations to the nearest whole cent.
c. Assume the company decides instead to use a traditional costing system in which ALL (including the \$110,000 other) costs are allocated to customers on the basis of cleaning hours. Compute the margin for the Lumbard family. Round off all calculations to the nearest whole cent.

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