Question

Omasini Corporation has provided the following data from its activity-based costing accounting system:

Supervisory wages $600,000
Factory supplies $200,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools Batch Processing Unit Processing Other Total
Supervisory wages 25% 60% 15% 100%
Factory supplies 40% 30% 30% 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 supervisory wages and factory supplies cost would NOT be assigned to products using the activity-based costing system?

Wedd Corporation uses activity-based costing to assign overhead costs to products. Overhead costs have already been allocated to the company's three activity cost pools as follows: Processing, $52,500; Supervising, $28,600; and Other, $24,400. Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:


MHs (Processing) Batches (Supervising)
Product O6 18,500 1,400
Product D7 1,100 510
Total 19,600 1,910

The activity rate for the Processing activity cost pool under activity-based costing is closest to:___________

Answer 1

1. Omasini corporation

Allocation of Supervisory wages and Factory Supplies to Other:

Supervisory wages = $600,000 x 15% = $90,000

Factory supplies = $200,000 x 30% = $60,000

Total = $150,000

Step-by-step explanation:

a) Data and Calculations:

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools Batch Processing Unit Processing Other Total

Supervisory wages 25% 60% 15% 100%

Factory supplies 40% 30% 30% 100%

Factory Overhead:

Supervisory wages $600,000

Factory supplies $200,000

b) Omasini Corporation can use Activity-Based Costing technique as a costing method to identify activities, accumulate the costs based on activity pools, and allocate the same according to the actual consumption by each unit of service, department, or product. The idea behind this technique is to reduce arbitrary allocation of costs since costs are caused by activities and should be allocated based on the level of activity caused by a cost unit.