Question

In: Accounting

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

Sultan Company uses an activity-based costing system.

At the beginning of the year, the company made the following estimates of cost and activity for its five activity cost pools:

Activity Cost Pool Activity Measure Expected
Overhead Cost
Expected Activity
Labor-related Direct labor-hours $ 311,500   44,500   DLHs
Purchase orders Number of orders $ 8,840   221   orders
Parts management Number of part types $ 71,280   99   part types
Board etching Number of boards $ 63,700   1,820   boards
General factory Machine-hours $ 148,000   14,800   MHs
 

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)   6,800     27,300     4,600     5,800  
Purchase orders (orders)   51     29     49     92  
Parts management (part types)   34     17     33     15  
Board etching (boards)   500     770     550     0  
General factory (MHs)   2,100     6,300     2,400     4,000  
 

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

Solutions

Expert Solution

1] CALCULATION OF ACTIVITY RATES:                
  Activity Cost Pool Activity Measure Expected Expected Activity            
  Overhead Cost Activity Rate          
  Labor-related Direct labor-hours 311,500 44,500 $ 7.00 DLHs        
  Purchase orders Number of orders 8,840 221 $ 40.00 orders        
  Parts management Number of part types 71,280 99 $720.00 part types        
  Board etching Number of boards 63,700 1,820 $ 35.00 boards        
  General factory Machine-hours 148,000 14,800 $ 10.00 MHs        
2] ASSIGNMENT OF OVERHEAD:                  
    Expected Activity   Overhead Assigned
  Activity Cost Pool Product A Product B Product C Product D Activity Rate Product A Product B Product C Product D
  Labor-related (DLHs) 6,800 27,300 4,600 5,800 $ 7.00 $47,600 $          191,100 $         32,200 $        40,600
  Purchase orders (orders) 51 29 49 92 $ 40.00 $ 2,040 $              1,160 $           1,960 $          3,680
  Parts management (part types) 34 17 33 15 $720.00 $24,480 $            12,240 $         23,760 $        10,800
  Board etching (boards) 500 770 550 0 $ 35.00 $17,500 $            26,950 $         19,250 $                 -  
  General factory (MHs) 2,100 6,300 2,400 4,000 $ 10.00 $21,000 $            63,000 $         24,000 $        40,000
  Total overhead assigned for each product       $         112,620 $          294,450 $       101,170 $        95,080

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