Sarno Corporation Has an Activity-Based Costing System with Three Activity

Essay

Sarno Corporation has an activity-based costing system with three activity cost pools-Processing, Batch Setup, and Other. 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 company's two products appear below:
$\begin{array}{ll}\text { Activity Cost Pools }\\\text { Processing } & \$ 3,000 \\\text { Batch Setup } & \$ 9,800 \\\text { Other } & \$ 9,200\end{array}$

$$\begin{array} { l c r } & \text { MHs } & \text { Batches } \\\text { Product \#1 } & 5,800 & 700 \\\text { Product \#2 } & 4,200 & 300 \\\text { Total } & 10,000 & 1,000 \\\end{array}$$
$$\begin{array} { l r r } & \text { Product\#1 } & \text { Product \#2 } \\\text { Sales } & \$ 45,300 & \$ 48,400 \\\text { Direct materials } & \$ 19,600 & \$ 16,900 \\\text { Direct labor } & \$ 15,900 & \$ 24,200\end{array}$$
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.