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Sultan Company uses an activity-based costing system. At the beginning of the year, the company made...

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 Required:

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

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) 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.

Overhead Cost Assigned for Product A, B, C, & D.

Solutions

Expert Solution

1. Computation of activity rate For each pool:

Activity cost pool:

Labor related = 311500 / 44500 = $ 7

Purchase orders = 8840 / 221 = $ 40

Parts management = 71280 / 99 = $ 720

Board etching = 63700 / 1820 = $ 35

General factory = 148000 / 14800 51= $ 10

2. Computation of total overhead cost:

Activity cost pool	Product A	Product B	Product C	Product D
Labor related	6,800	27,300	4,600	5,800
Purchase orders	51	29	49	92
Parts management	34	17	33	15
Board etching	500	770	550	0
General factory	2100	6300	2400	4000

Total estimated cost :

Product A =

Labor related = 7 * 6800 = $ 47600

Purchase orders = 40 * 51 = $ 2040

Parts management = 720 * 34 = $ 24480

Board etching = 35 * 500 = $ 17500

General factory = 10 * 2100 = $ 21000

Product B =

Labor related = 7 * 27300 = $ 191100

Purchase orders = 40 * 29 = $ 1160

Parts management = 720 * 17 = $ 12240

Board etching = 35 * 770 = $ 26950

General factory = 10 * 6300 = $ 63000

Product C =

Labor related = 7 * 4600 = $ 32200

Purchase orders = 40 * 49 = $ 1960

Parts management = 720 * 33 = $ 23760

Board etching = 35 * 550 = $ 19250

General factory = 10 * 2400 = $ 24000

Product D =

Labor related = 7 * 5800 = $ 40600

Purchase orders = 40 * 92 = $ 3680

Parts management = 720 * 15 = $ 10800

Board etching = 35 * 0 = $ 0

General factory = 10 * 4000 = $ 40000

ekkarill92 answered 1 year ago

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