**Klumper Corporation's Activity-Based Costing Analysis**Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system includes the following six activity cost pools and their respective activity rates:- **Supporting direct labor**: $6 per direct labor-hour- **Machine processing**: $3 per machine-hour- **Machine setups**: $45 per setup- **Production orders**: $160 per order- **Shipments**: $115 per shipment- **Product sustaining**: $875 per productThe activity data for two products, K425 and M67, are provided below:| **Total Expected Activity** | **K425** | **M67** ||-----------------------------|----------|---------|| Number of units produced per year | 200 | 2,000 || Direct labor-hours | 1,150 | 50 || Machine-hours | 3,200 | 40 || Machine setups | 7 | 2 || Production orders | 7 | 2 || Shipments | 14 | 2 || Product sustaining | 2 | 2 |**Required:**Calculate the total overhead cost assigned to K425 and M67 using the activity-based costing system.**Solution Framework:**| **Activity Cost Pool** | **K425** | **M67** ||-----------------------------|----------|---------|| Supporting direct labor | | || Machine processing | | || Machine setups | | || Production orders | | || Shipments | | || Product sustaining | | || **Total overhead cost** | | |Use the activity data and rates provided to compute the costs for each activity and total them to find the overall overhead for each product.

Answered: tivity Cost Pool pporting direct labor…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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**Klumper Corporation's Activity-Based Costing Analysis**

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

- **Supporting direct labor**: $6 per direct labor-hour
- **Machine processing**: $3 per machine-hour
- **Machine setups**: $45 per setup
- **Production orders**: $160 per order
- **Shipments**: $115 per shipment
- **Product sustaining**: $875 per product

The activity data for two products, K425 and M67, are provided below:

| **Total Expected Activity** | **K425** | **M67** |
|-----------------------------|----------|---------|
| Number of units produced per year | 200 | 2,000 |
| Direct labor-hours | 1,150 | 50 |
| Machine-hours | 3,200 | 40 |
| Machine setups | 7 | 2 |
| Production orders | 7 | 2 |
| Shipments | 14 | 2 |
| Product sustaining | 2 | 2 |

**Required:**

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

**Solution Framework:**

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

Use the activity data and rates provided to compute the costs for each activity and total them to find the overall overhead for each product.

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Step 1: Introduction

ABC costing is especially effective when products or services have varying resource consumption patterns and standard costing methods may result in erroneous cost allocation. It gives companies a more thorough and accurate picture of the costs associated with various operations, allowing them to make more educated decisions about pricing, product mix, and process improvements.

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