Harrison Industries Has an Activity-Based Costing System with Three Activity $\begin{array}{lrr} \text { Factory utilities} &\$29,000\\ \text {Indirect labor } &\$7,000\\\end{array}$

question 75

Essay

Harrison Industries has an activity-based costing system with three activity cost pools-Processing, Batch Setup, 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 Batch Setup 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:
$\begin{array}{lrr} \text { Factory utilities} &\$29,000\\ \text {Indirect labor } &\$7,000\\\end{array}$

$$\begin{array}{l}\text { Distribution of Resource Consumption Across Activity Cast Pools }\\\begin{array} { | l | c | c | c | } \hline & \text { Processing } & \text { Setting Up } & \text { Other } \\\hline \text { Factary utilities } & 0.40 & 0.10 & 0.50 \\\hline \text { Indirect labor } & 0.50 & 0.20 & 0.30 \\\hline\end{array}\end{array}$$
$$\begin{array} { l c r } & \text { MHs } & \text { Batches } \\\text { Product \#1 } & 2,900 & 700 \\\text { Product \#2 } &\underline{7,100} & \underline{300} \\\text { Total } &\underline{ 10,000}& \underline{1,000} \\\end{array}$$
$\begin{array}{lrr} & \text { Product \#1 } & \text { Product \#2 } \\\text { Sales } & \$ 54,000 & \$ 85,100 \\\text { Direct materials } & 19,100& \$ 33,500 \\\text { Direct labor } & 26,300 & \$ 35,000\end{array}$

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.

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Definitions:

Limited Liability Company

A business organization strategy that harmonizes the limited liability advantage of a corporation with the taxation simplicity of a partnership or sole proprietorship.

Operations Participation

The involvement or engagement in the ongoing activities or processes of an organization, project, or system.

Articles of Organization

A document filed with a state governmental entity to legally establish a limited liability company (LLC).

Member-Managed

Describes a management structure in a limited liability company (LLC) where all members (owners) actively participate in the day-to-day operations and decision-making process.