Chapter 4, Problem 18P

Adria Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:

Required:

1. Compute the activity rate for each of the activity cost pools.
2. The expected activity for the year was distributed among the company’s four products as follows:

Using the ABC data, determine the total amount of overhead cost assigned to each product.

3. Assume that prior to implementing ABC. Adria used a conventional cost system that applied all manufacturing overhead to products based on machine-hours. Explain how the conventional cost assignments would differ from the activity-based cost assignments with respect to Product C.