Question

Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below:

   

Activity Cost pool	Activity Measure	Activity Rate
Order size	Number of direct labor-hours	$	16.50	per direct labor-hour*
Customer orders	Number of customer orders	$	359.00	per customer order
Product testing	Number of testing hours	$	81.00	per testing hour
Selling	Number of sales calls	$	1,491.00	per sales call

  

The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 170 direct labor-hours, 18 hours of product testing, and 5 sales calls.

  

The results of the first-stage allocation of the activity-based costing system at Durban Metal Products, Ltd., in which the activity rates were computed, appear below:

   

	Order Size		Customer Orders		Product Testing		Selling
Manufacturing overhead:
Indirect labor	$	7.90	$	234.00	$	32.00	$	0.00
Factory depreciation		7.20		0.00		19.00		0.00
Factory utilities		.70		0.00		3.00		0.00
Factory administration		0.00		43.00		27.00		7.00
Selling and administrative:
Wages and salaries		.70		74.00		0.00		966.00
Depreciation		0.00		8.00		0.00		41.00
Taxes and insurance		0.00		0.00		0.00		50.00
Selling expenses		0.00		0.00		0.00		427.00
Total overhead cost	$	16.50	$	359.00	$	81.00	$	1,491.00

  

Required:
1.	Prepare a report showing the overhead cost of the order for heavy-duty trailer axles. What is the total overhead cost of the order?

      

Answer 1

• All working forms part of the answer
• Working for determining costs

	Order	No. of direct labor hours	Customer	No. of order	Product	No. of testing hours	Selling	No. of sales call
	Size	170 DLHs	Orders	1	Testing	18		5
	[A]	[B = A x 170 DLHs]	[C]	[D = C x 1 order]	[E]	[F = E x 18 testing hours]	[G]	[H = G x 5 calls]
Manufacturing overhead:
Indirect labor	$                     7.90	$           1,343.00	$                234.00	$              234.00	$                    32.00	$          576.00	$                    -	$                   -
Factory depreciation	$                     7.20	$           1,224.00	$                          -	$                       -	$                    19.00	$          342.00	$                    -	$                   -
Factory utilities	$                     0.70	$              119.00	$                          -	$                       -	$                       3.00	$            54.00	$                    -	$                   -
Factory administration	$                          -	$                        -	$                   43.00	$                43.00	$                    27.00	$          486.00	$               7.00	$            35.00
Selling and administrative:
Wages and salaries	$                     0.70	$              119.00	$                   74.00	$                74.00	$                           -	$                   -	$          966.00	$      4,830.00
Depreciation	$                          -	$                        -	$                     8.00	$                   8.00	$                           -	$                   -	$             41.00	$          205.00
Taxes and insurance	$                          -	$                        -	$                          -	$                       -	$                           -	$                   -	$             50.00	$          250.00
Selling expenses	$                          -	$                        -	$                          -	$                       -	$                           -	$                   -	$          427.00	$      2,135.00
Total overhead cost	$                   16.50	$           2,805.00	$                359.00	$              359.00	$                    81.00	$      1,458.00	$       1,491.00	$      7,455.00

• Answer

	Order Size	Customer Orders	Product Testing	Selling	Total Overhead cost
Manufacturing overhead:
Indirect labor	$             1,343.00	$              234.00	$                576.00	$                       -	$              2,153.00
Factory depreciation	$             1,224.00	$                        -	$                342.00	$                       -	$              1,566.00
Factory utilities	$                119.00	$                        -	$                   54.00	$                       -	$                  173.00
Factory administration	$                          -	$                 43.00	$                486.00	$                35.00	$                  564.00
Total Manufacturing Overhead cost	$             2,686.00	$              277.00	$             1,458.00	$                35.00	$              4,456.00
Selling and administrative:
Wages and salaries	$                119.00	$                 74.00	$                          -	$          4,830.00	$              5,023.00
Depreciation	$                          -	$                   8.00	$                          -	$              205.00	$                  213.00
Taxes and insurance	$                          -	$                        -	$                          -	$              250.00	$                  250.00
Selling expenses	$                          -	$                        -	$                          -	$          2,135.00	$              2,135.00
Total Selling Overhead cost	$                119.00	$                 82.00	$                          -	$          7,420.00	$              7,621.00
Total Overhead cost	$             2,805.00	$              359.00	$             1,458.00	$          7,455.00	$            12,077.00

• Total Overhead cost for the order = $ 12,077