Question

As you might imagine the ABC Tank Manufacturing Company uses an activity-based costing system. ABC has given you the following data that is used in its activity-based costing system:

  

Overhead Costs
Wages and salaries	$	347,000
Other overhead costs		197,000
Total overhead costs	$	544,000

  

Activity Cost Pool	Activity Measure	Total Activity
Direct labor support	Number of direct labor-hours	14,000	DLHs
Order processing	Number of orders	480	orders
Customer support	Number of customers	105	customers
Other	This is an organization-sustaining activity	Not applicable

  

	Distribution of Resource Consumption Across Activities
	Direct Labor Support		Order Processing		Customer Support		Other		Total
Wages and salaries	10	%	30	%	15	%	45	%	100	%
Other overhead costs	25	%	10	%	20	%	45	%	100	%

  

Early in this year, ABC Tank completed an order for a special vertical envelopment tank for a new customer, Sky Tanks. This was the only order from this customer for the whole year. Below is some data concerning that order:

  

Data Concerning the Sky Tank Order
Selling price	$	290	per unit
Units ordered		100	units
Direct materials	$	267	per unit
Direct labor-hours		0.6	DLH per unit
Direct labor rate	$	21	per DLH

  

Required:
1.	Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.

     

2.	Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

     

3.	Compute the overhead costs for the order from Sky Tank, including customer support costs. (Round your intermediate calculations and final answers to 2 decimal places.)

     

4.	Prepare a report showing the customer margin for Sky Tank.

Answer 1

Answer 1
A report showing the first-stage allocations of overhead costs to the activity cost pools.
		Activity Cost Pools
	Total Cost	Direct Labor Support	Order Processing	Customer Support	Other
Wages and salaries	$347,000.00	$34,700.00	$104,100.00	$52,050.00	$156,150.00
Other overhead cost	$197,000.00	$49,250.00	$19,700.00	$39,400.00	$88,650.00
Allocated Overhead cost		$83,950.00	$123,800.00	$91,450.00	$244,800.00
Answer 2
Compute the activity rates for the activity cost pools.
Activity rate for Direct Labor support = Allocated Overhead cost / Number of direct labor hours = $83,950 / 14000 DLHs = $6 per direct labor hour
Activity rate for Order Processing = Allocated Overhead cost / Number of orders = $123,800 / 480 orders = $257.92 per order
Activity rate for Customer Support= Allocated Overhead cost / Number of customers = $91,450 / 105 customers = $870.95 per customer
Answer 3
Compute the overhead costs for the order from Sky Tank, including customer support costs.
			Overhead Cost
Direct Labor support [100 units x 0.6 DLH per unit x $6]			$360.00
Order Processing [1 order x $257.92]			$257.92
Customer Support [1 customer x $870.95]			$870.95
Overhead costs for the order from Sky Tank			$1,488.87
Answer 4
A report showing the customer margin for Sky Tank.
Sales [100 units x $290 per unit]		$29,000.00
Less : Costs
- Direct Materials [100 units x $267 per unit]		$26,700.00
- Direct Labor cost [100 units x 0.6 DLH x $21]		$1,260.00
- Overhead cost		$1,488.87
Customer Margin		-$448.87