FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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**Klumper Corporation: Activity-Based Costing System**

Klumper Corporation is a diversified manufacturer of industrial goods. The company utilizes an activity-based costing system with the following six activity cost pools and their respective activity rates:

| **Activity Cost Pool**          | **Activity Rate**          |
|---------------------------------|----------------------------|
| Supporting direct labor         | $10 per direct labor-hour  |
| Machine processing              | $5 per machine-hour        |
| Machine setups                  | $35 per setup              |
| Production orders               | $150 per order             |
| Shipments                       | $130 per shipment          |
| Product sustaining              | $850 per product           |

**Activity Data for Two Products:**

The activity data supplied for the following two products is as follows:

| **Total Expected Activity**     | **K425**       | **M67**        |
|---------------------------------|----------------|----------------|
| Number of units produced per year | 200            | 2,000          |
| Direct labor-hours              | 1,200          | 40             |
| Machine-hours                   | 3,200          | 30             |
| Machine setups                  | 5              | 2              |
| Production orders               | 5              | 2              |
| Shipments                       | 10             | 2              |
| Product sustaining              | 2              | 2              |

**Required:**

Determine the total overhead cost assigned to products K425 and M67 using the activity-based costing system.

| **Activity Cost Pool**          | **K425**       | **M67**        |
|---------------------------------|----------------|----------------|
| Supporting direct labor         |                |                |
| Machine processing              |                |                |
| Machine setups                  |                |                |
| Production orders               |                |                |
| Shipments                       |                |                |
| Product sustaining              |                |                |
| **Total overhead cost**         |                |                |

To compute the total overhead costs, multiply each activity's rate by the corresponding activity data for both products and fill in the table with the calculated costs.
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Transcribed Image Text:**Klumper Corporation: Activity-Based Costing System** Klumper Corporation is a diversified manufacturer of industrial goods. The company utilizes an activity-based costing system with the following six activity cost pools and their respective activity rates: | **Activity Cost Pool** | **Activity Rate** | |---------------------------------|----------------------------| | Supporting direct labor | $10 per direct labor-hour | | Machine processing | $5 per machine-hour | | Machine setups | $35 per setup | | Production orders | $150 per order | | Shipments | $130 per shipment | | Product sustaining | $850 per product | **Activity Data for Two Products:** The activity data supplied for the following two products is as follows: | **Total Expected Activity** | **K425** | **M67** | |---------------------------------|----------------|----------------| | Number of units produced per year | 200 | 2,000 | | Direct labor-hours | 1,200 | 40 | | Machine-hours | 3,200 | 30 | | Machine setups | 5 | 2 | | Production orders | 5 | 2 | | Shipments | 10 | 2 | | Product sustaining | 2 | 2 | **Required:** Determine the total overhead cost assigned to products K425 and M67 using the activity-based costing system. | **Activity Cost Pool** | **K425** | **M67** | |---------------------------------|----------------|----------------| | Supporting direct labor | | | | Machine processing | | | | Machine setups | | | | Production orders | | | | Shipments | | | | Product sustaining | | | | **Total overhead cost** | | | To compute the total overhead costs, multiply each activity's rate by the corresponding activity data for both products and fill in the table with the calculated costs.
Expert Solution
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Step 1: Introduction

The activity rate is calculated as the estimated activity cost divided by the estimated usage. The overhead is applied to the different products using the activity rates under activity based costing.

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