Lakey Corporation has an activity-based costing system with three activity cost pools-Machining, Setting Up, and Other. The company's overhead costs have already been allocated to the cost pools and total $11,000 for the Machining cost pool, $26,200 for the Setting Up cost pool, and $9,800 for the Other cost pool. Costs in the Machining 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 appear below:?MHsBatchesProduct S78,400200Product W31,6001,800Total10,0002,000Required:a. Calculate activity rates for each activity cost pool using activity-based costing.b. Determine the amount of overhead
cost that would be assigned to each product using activity-based costing.
What will be an ideal response?
a. Computation of activity rates:
| Activity Cost Pools | Total Cost | Total Activity | Activity Rate | ||||
| Machining | $ | 11,000 | 10,000 | MHs | $ | 1.10 | per MH |
| Setting up | $ | 26,200 | 2,000 | batches | $ | 13.10 | per batch |
Overhead cost for Product S7:
| Activity Rate | Activity | ABC Cost | |||||
| Machining | $ | 1.10 | per MH | 8,400 | MHs | $ | 9,240 |
| Setting up | $ | 13.10 | per batch | 200 | batches | 2,620 | |
| Total | $ | 11,860 | |||||
| Activity Rate | Activity | ABC Cost | |||||
| Machining | $ | 1.10 | per MH | 1,600 | MHs | $ | 1,760 |
| Setting up | $ | 13.10 | per batch | 1,800 | batches | 23,580 | |
| Total | $ | 25,340 | |||||
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