Farris Corporation's Activity-Based Costing System Has Three Activity Cost Pools-Machining $$\begin{array} { l r } \text { Machining } & \$ 15,200 \\\text { Batch Setup } & 44,800 \\\text { Other } & 16,000\end{array}$$

Farris Corporation's activity-based costing system has three activity cost pools-Machining, Batch Setup, and Other. The company's overhead costs have already been allocated to these cost pools as follows:
$$\begin{array} { l r } \text { Machining } & \$ 15,200 \\\text { Batch Setup } & 44,800 \\\text { Other } & 16,000\end{array}$$
Costs in the Machining 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. The following table shows the machine-hours and number of batches associated with each of the company's two products:
$$\begin{array} { l c r } & \text { MHs } & \text { Batehes } \\\text { Product Sea } & 2,000 & 8 0 0 \\\text { Product Air } & 8 , 0 0 0 & 200 \\\text { Total }& 10,000& 1,000 \\\end{array}$$
Additional data concerning the company's products appears below:
$$\begin{array} { l r r } & \text { Product Sea } & \text { Product Air } \\\text { Sales } &\$ 2 2 0 , 7 0 0 & \$ 1 6 5 , 5 0 0 \\\text { Direct materials } & 78,600 & 8 3 , 1 0 0 \\\text { Direct labor } & \$8 9 , 6 0 0 & 58,000\end{array}$$
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.

Correct Answer:

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a. Computation of activity rates:
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