Question

Manufacturing overhead	$500,000
Selling and administrative overhead	$300,000
	Assembling Units	Processing Orders	Supporting Customers	Other
Manufacturing overhead	50%	35%	5%	10%
Selling and administrative overhead	10%	45%	25%	20%
Total activity	1,000	250	100
	units	orders	customers
OfficeMart orders:
Customers	1	customer
Orders	4	orders
Number of filing cabinets ordered in total	80	units
Selling price	$595
Direct materials	$180
Direct labor	$50

Compute the overhead cost attributable to the OfficeMart orders
Activity Cost Pools	Activity Rate		Activity		ABC Cost
Assembling units	?	per unit	?	units	?
Processing orders	?	per order	?	orders	?
Supporting customers	?	per customer	?	customer	?

Answer 1

The allocation of cost is shown in the following steps :

Step : 1 - First Stage Allocation

	Assembling Units	Processing Orders	Supporting Customers	Other	Total
Manufacturing overhead	250000 (50%)	175000 (35%)	25000 (5%)	50000 (10%)	500000
Selling and administrative overhead	30000 (10%)	135000 (45%)	75000 (25%)	60000 (20%)	300000
Total Cost	280000	310000	100000	110000	800000

Step : 2 - Computing the Activity Rates

Activity Cost Pools	Total Cost	Total Activity	Activity Rate
Assembling Units	280000	1000 units	280 per unit
Processing Orders	310000	250 orders	1240 per order
Supporting Customers	100000	100 customer	1000 per customer

Step : 3 - Computing the Overhead cost attributable to OfficeMart orders

Activity Cost Pools	Activity Rate		Activity		ABC Cost
Assembling Units	280	per unit	80	units	22400
Processing Orders	1240	per order	4	orders	4960
Supporting Customers	1000	per customer	1	customer	1000
TOTAL					28360