Question

The following data have been provided by Letze Corporation from its activity-based costing accounting system: Factory supervision $ 460,000 Indirect factory labor $ 220,000 Distribution of Resource Consumption across Activity Cost Pools: Activity Cost Pools Batch Set-Up Expediting Other Total Factory supervision 55% 35% 10% 100% Indirect factory labor 60% 20% 20% 100% The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products. How much factory supervision and indirect factory labor cost would be assigned to the Batch Set-Up activity cost pool?

Answer 1

Answer:

Letze Corporation

Overhead allocation to Batch Set-Up:

Factory supervision = 55% of $460,000 = $253,000

Indirect factory labor = 60% of $220,000     132,000

Total overhead assigned                             $385,000

Explanation:

a) Data and Calculations:

Factory supervision $ 460,000

Indirect factory labor $ 220,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools

                                 Batch Set-Up     Expediting        Other     Total

Factory supervision      55%                    35%                10%      100%

Indirect factory labor    60%                   20%                20%      100%

b) Letze Corporation can use Activity-Based Costing as a system of cost accumulation and allocation based on activity cost pools so that overhead costs are assigned based on the level of activity which each cost pool generates.  It tries to tie costs to the activities that generate them.