Question

Lehner Corporation has provided the following data from its activity-based costing accounting system:

Indirect factory wages	$577,000
Factory equipment depreciation	$346,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools

	Customer Orders	Product Processing	Other	Total
Indirect factory wages	35%	55%	10%	100%
Factory equipment depreciation	30%	55%	15%	100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

How much indirect factory wages and factory equipment depreciation cost would NOT be assigned to products using the activity-based costing system?

$577,000

$346,000

$109,600

$0

Lehner Corporation has provided the following data from its activity-based costing accounting system:

Indirect factory wages	$569,000
Factory equipment depreciation	$270,000

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools

	Customer Orders	Product Processing	Other	Total
Indirect factory wages	60%	25%	15%	100%
Factory equipment depreciation	30%	45%	25%	100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

How much indirect factory wages and factory equipment depreciation cost would be assigned to the Customer Orders activity cost pool?

$422,400

$565,400

$389,900

$839,000

Answer 1

• All working forms part of the answer and clearly shown
• Requirement 1: Note that ‘Other cost’ are not to be assigned

Calculation of allocation of overheads

		Cost to be assigned		Cost not to be assigned
Cost	Amount	Customer Orders	Product Processing	Other	Total
Indirect Factory Wages	577000	[35%] 201950	[55%] 317350	[10%] 57700	[100%] 577000
Factory Equipment depreciation	346000	[30%] 103800	[55%] 190300	[15%] 51900	[100%] 346000

Since, ‘other’ allocated cost is not to be assigned and its total is asked in the question, The CORRECT ANSWER will be 57700 + 51900 = $ 109,600 [OPTION – C]

• Requirement 2:

		Cost to be assigned		Cost not to be assigned
Cost	Amount	Customer Orders	Product Processing	Other	Total
Indirect Factory Wages	569000	[60%] 341400	[25%] 142250	[15%] 85350	[100%] 569000
Factory Equipment depreciation	270000	[30%] 81000	[45%] 121500	[25%] 67500	[100%] 270000

Question’s requirement is regarding total cost allocated to Customer Order activity cost pool, and the answer will e 341400 + 81000 = $422,400 which is OPTION - A