Chuang Corporation's Activity-Based Costing System Has Three Activity Cost Pools-Machining

question 36

Essay

Chuang Corporation's activity-based costing system has three activity cost pools-Machining, Setting Up, and Other. The company's overhead costs have already been allocated to these cost pools as follows: 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. The following table shows the machine-hours and number of batches associated with each of the company's two products: Additional data concerning the company's products appears below: Required:
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.
c. Determine the product margins for each product using activity-based costing.

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Definitions:

Cannibalization

The loss of sales of an existing product due to the introduction of a new product by the same company.

Sunk Costs

Expenditures that have been made and cannot be recovered, and should not influence ongoing investment decisions.

Beta

A measure of a stock's volatility in relation to the overall market; a beta of 1 indicates that the stock moves with the market.

Expected NPV

The anticipated Net Present Value of a project or investment, considering the potential outcomes and their probabilities.