Question

 

Rusties 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:

Activity Cost Pool	Activity Measure	Expected Overhead Cost		Expected Activity
Labor-related	Direct labor-hours	$	24,912	2,076	DLHs
Purchase orders	Number of orders	$	1,070	535	orders
Product testing	Number of tests	$	4,550	325	tests
Template etching	Number of templates	$	770	35	templates
General factory	Machine-hours	$	52,500	10,500	MHs

Required:

1. Compute the activity rate for each of the activity cost pools

	Activity Cost Pool Activity Rate Labor-related   per DLH Purchase orders   per order Product testing   per test Template etching   per template General factory   per MH

2. The expected activity for the year was distributed among the company’s four products as follows:

	Expected Activity
Activity Cost Pool	Product A	Product B	Product C	Product D
Labor-related (DLHs)	750	126	600	600
Purchase orders (orders)	30	165	150	190
Product testing (tests)	200	50	0	75
Template etching (templates)	0	17	15	3
General factory (MHs)	3,900	2,200	1,500	2,900

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

Answer 1

1
Activity Cost Pool	Activity Rate
Labor-related	12	per DLH	=24912/2076
Purchase orders	2	per order	=1070/535
Product testing	14	per test	=4550/325
Template etching	22	per template	=770/35
General factory	5	per MH	=52500/10500
2
Total overhead cost:
Product A	31360
Product B	13916
Product C	15330
Product D	23196

Workings:
Product A:
Labor-related	9000	=12*750
Purchase orders	60	=2*30
Product testing	2800	=14*200
Template etching	0
General factory	19500	=5*3900
Total overhead cost	31360
Product B:
Labor-related	1512	=12*126
Purchase orders	330	=2*165
Product testing	700	=14*50
Template etching	374	=22*17
General factory	11000	=5*2200
Total overhead cost	13916
Product C:
Labor-related	7200	=12*600
Purchase orders	300	=2*150
Product testing	0
Template etching	330	=22*15
General factory	7500	=5*1500
Total overhead cost	15330
Product D:
Labor-related	7200	=12*600
Purchase orders	380	=2*190
Product testing	1050	=14*75
Template etching	66	=22*3
General factory	14500	=5*2900
Total overhead cost	23196