Question

	Manufacturing overhead	Amount	Cost driver	Standard Guest Room	Junior Suite	Presidential Suite
	Depreciation	$3,200,000	Square feet	50,000	30,000	30,000
	Maintenance	$1,800,000	Direct labor hours	180,000	143,000	148,500
	Purchasing	$320,000	# of purchase orders	2,500	1,500	9,000
	Inspection	$850,000	# of inspections	1,000	850	3,500
	Indirect	$490,000	Units manufactured	150	110	25
	materials
	Supervision	$1,700,000	# of inspections	1,000	850	3.5
	Supplies	$190,000	Units manufactured	150	110	25
	Total	$8,550,000		234,800	176,420	191,054

Calculate the cost of one Presidential Suite using activity-based costing

Answer 1

• All working forms part of the answer
• Step 1: Calculation of activity rates per cost driver

Manufacturing overhead	Amount	Cost driver	Standard Guest Room	Junior Suite	Presidential Suite	TOTAL no. of cost driver	Activity Rate per cost driver
	[A]		[B]	[C]	[D]	[E = B + C + D]	[F = A/E]
Depreciation	$                                 3,200,000.00	Square feet	50,000.00	30,000.00	30,000.00	110,000.00	$             29.090909
Maintenance	$                                 1,800,000.00	Direct labor hours	180,000.00	143,000.00	148,500.00	471,500.00	$               3.817603
Purchasing	$                                     320,000.00	# of purchase orders	2,500.00	1,500.00	9,000.00	13,000.00	$             24.615385
Inspection	$                                     850,000.00	# of inspections	1,000.00	850.00	3,500.00	5,350.00	$          158.878505
Indirect materials	$                                     490,000.00	Units manufactured	150.00	110.00	25.00	285.00	$       1,719.298246
Supervision	$                                 1,700,000.00	# of inspections	1,000.00	850.00	3.50	1,853.50	$          917.183707
Supplies	$                                     190,000.00	Units manufactured	150.00	110.00	25.00	285.00	$          666.666667
Total	$                                 8,550,000.00		234,800	176,420	191,054

• Step 2: Calculation of Overhead allocated and Cost per Presidential Suite

Manufacturing overhead	Activity Rate per cost driver	Presidential Suite No. of cost driver	Amount of cost allocated
	[A]	[B]	[C = A x B]
Depreciation	$                                      29.090909	30,000.00	872,727.27
Maintenance	$                                        3.817603	148,500.00	566,914.10
Purchasing	$                                      24.615385	9,000.00	221,538.46
Inspection	$                                    158.878505	3,500.00	556,074.77
Indirect materials	$                                1,719.298246	25.00	42,982.46
Supervision	$                                    917.183707	3.50	3,210.14
Supplies	$                                    666.666667	25.00	16,666.67
Total Cost Allocated			2,280,113.87
Total Presidential Suites [units]			285
Cost of 1 presidential Suites			$ 8,000.40 or $ 8,000 per suite