Sebastian Corporation's Activity-Based Costing System Has Three Activity Cost Pools-Machining $\begin{array}{lrr} \text { Equipment depreciation } &\$27,000\\ \text { Indirect labor } &\$7,000\\\end{array}$

question 19

Essay

Sebastian Corporation's activity-based costing system has three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs, which consist of equipment depreciation and indirect labor, are allocated to the cost pools in proportion to the activity cost pools' consumption of resources.
$\begin{array}{lrr} \text { Equipment depreciation } &\$27,000\\ \text { Indirect labor } &\$7,000\\\end{array}$

$$\begin{array}{l}\text { Distributim of Resaurce Cmsumption Acrass Activity Cast Ponls }\\\begin{array} { | l | c | c | c | } \hline & \text { Machining } & \text { Batch Setup } & \text { Other } \\\hline \text { Equipment depreciation } & 0.40 & 0.30 & 0.30 \\\hline \text { Indirect labor } & 0.20 & 0.30 & 0.50 \\\hline\end{array}\end{array}$$
Costs in the Machining 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.
$$\begin{array} { l c r } & \text { MHs } & \text { Batches } \\\text { Product Snorkel } & 8,100 & 400 \\\text { Product Fin } & \underline{1,900 }& \underline{ 1,600} \\\text { Total } & \underline{10,000 }& \underline{2,000 }\\\end{array}$$
Additional data concerning the company's products appears below:
$$\begin{array} { l c c } & \text { Product Snorkel } & \text { Product Fin } \\\text { Sales } & \$ 71,400 & \$ 57,600 \\\text { Direct materials } & \$ 21,900 & \$ 19,900 \\\text { Direct labor } & \$ 33,700 & \$ 25,100\end{array}$$
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:

Transportation Model

A type of optimization model used to determine the most efficient distribution of goods or services from several supply locations to several demand locations.

Cells

In operations management, refers to a manufacturing or service area structured to work as a unit for the production of goods or delivery of services.

Destinations

The end points or locations to which goods, services, information, or individuals are directed or delivered.

Sources

Origins or points of derivation, often referenced in research to identify where information, data, or ideas were obtained.