Question

Advanced Products Corporation has supplied the following data from its activity-based costing system:

Overhead Costs
Wages and salaries	$	300,000
Other overhead costs		100,000
Total overhead costs	$	400,000

Activity Cost Pool	Activity Measure	Total Activity for the Year
Supporting direct labor	Number of direct labor-hours	20,000	DLHs
Order processing	Number of customer orders	400	orders
Customer support	Number of customers	200	customers
Other	This is an organization- sustaining activity	Not applicable

Distribution of Resource Consumption Across Activities
	Supporting Direct Labor		Order Processing		Customer Support		Other		Total
Wages and salaries	40	%	30	%	20	%	10	%	100	%
Other overhead costs	30	%	10	%	20	%	40	%	100	%

During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow:

Data Concerning the Shenzhen Enterprises Order
Units ordered		10	units
Direct labor-hours		2	DLHs per unit
Selling price	$	300	per unit
Direct materials	$	180	per unit
Direct labor	$	50	per unit

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.

3. Calculate the total overhead costs for the order from Shenzhen Enterprises including customer support costs.

4. Calculate the customer margin for Shenzhen Enterprises.

Answer 1

1. Allocation of overhead cost to activity cost pool:

	Direct labor support	Order processing	Customer Support	Other	Totals
Wages and salaries	$120,000 ($300,000 * 40%)	$90,000 ($300,000 * 30%)	$60,000 ($300,000 * 20%)	$30,000 ($300,000 * 10%)	$300,000
Other overhead cost	$30,000 ($100,000 * 30%)	$10,000 ($100,000 * 10%)	$20,000 ($100,000 * 20%)	$40,000 ($100,000 * 40%)	$100,000
Total cost	$150,000	$100,000	$80,000	$70,000	$400,000

2. Activity rates for activity cost pools:

Activity cost pool	Basis of allocation	Activity for the year	Overhead allocated	Activity rates
Direct labor support	Number of direct labor hours	20,000 DLH	$150,000	$7.5 per direct labor hour ($150,000 / 20,000)
Order processing	Number of customer orders	400 orders	$100,000	$250 per order ($100,000 / 400)
Customer support	Number of customers	200 customers	$80,000	$400 per customer ($80,000 / 200)
Other

3. Total overhead cost for Shenzhen Enterprises:

Direct labor support	$150 ($7.5 * 2 * 10)
Order processing	$250
Customer support	$400
Total overhead cost	$800

4. Customer margin for Shenzhen Enterprises:

Sales (10 * $300)		$3,000
Less : Cost
Direct material (10*$180)	1,800
Direct labor (10*$50)	500
Overhead cost	800
Total cost		3,100
Customer margin		- $100