Question

Deanna's Draperies makes custom draperies for homes and businesses. The company uses a traditional overhead application system basing it on the total yards of fabric used. The company wishes to use an activity-based costing system. Deanna's has provided the following data concerning its annual overhead costs and its activity cost pools. PLEASE HELP ME UNDERSTAND THIS! THANKS

Overhead Costs:
Indirect Labor and Materials	$240,000
Other Indirect Costs	160,000
Total Overhead Costs	$400,000

Distribution of Resource Consumption:

	Activity Cost Pool
	Production	Installation	Customer Support	Other	Total
Indirect Labor and Material	40%	30%	20%	10%	100%
Other Indirect Costs	50%	30%	10%	10%	100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The total amount of the activity for the year is as follows: Production - 4,000 yards; Installation - 200 Jobs; Customer Support - 100 Customers; and Other - Not applicable.

Darla Samson, one of Deanna's customers, had one job completed during the year that involved 60 yards of drapery fabric and has direct materials and direct labor cost of $1,500. The sales revenue from this job is $5,200.

REQUIRED: Complete the items below and then answer the related questions by matching the amount with the related item.

Part 1: Traditional Method

Compute the traditional overhead rate

Compute the overhead to be applied to the Darla Samson job

Compute the total cost to be applied to the Darla Samson job.

Part 2: Activity-Based Costing Method (Tables have been created for A. and B. below)

Prepare the first-stage allocation (see table below)

Compute the activity rates

Copmute the overhead to be applied to the Darla Samson job

Compute the total cost to be applied to the Darla Samson job

Part 3: Is the Darla Samson job over- or under- costs, using the traditional overhead application system?

Table for First-Stage Allocation

	Production	Installation	Customer Support	Other	Total
Indirect Labor and Material
Other Indirect Costs

-       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.       K.       L.       M.       N.       O.       P.       Q.       R.       S.       T.    Traditional: Overhead to be Applied to Darla Samson's Job       -       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.       K.       L.       M.       N.       O.       P.       Q.       R.       S.       T.    ABC: Other Indirect Costs Allocated to Production       -       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.       K.       L.       M.       N.       O.       P.       Q.       R.       S.       T.    ABC: Other Indirect Costs Allocated to Other       -       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.       K.       L.       M.       N.       O.       P.       Q.       R.       S.       T.    ABC: Total Costs Allocated to Other       -       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.       K.       L.       M.       N.       O.       P.       Q.       R.       S.       T.    ABC: Activity Rate for Other       -       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.       K.       L.       M.       N.       O.       P.       Q.       R.       S.       T.    ABC: Total Cost Applied to Darla Samson's Job       -       A.       B.       C.       D.       E.       F.       G.       H.       I.       J.       K.       L.       M.       N.       O.       P.       Q.       R.       S.       T.    Is Darla Samson's job over-costed or under-costed when using the traditional method?

A. $3,880.00 B. $48,000.00 C. $176,000.00 D. $80,000.00 E. Over-Costed F. $100.00 G. $72,000.00 H. $600.00 I. $640.00 J. $120,000.00 K. $24,000.00 L. $64,000.00 M. $44.00 N. $16,000.00 O. $40,000.00 P. $6,000.00 Q. $5,380.00 R. $7,500.00 S. Not Applicable T. $96,000.00

Answer 1

Part 1
Traditional overhead rate	100
400000/4000
Traditional: Overhead to be Applied to Darla Samson's Job
60*100	$6,000
total cost to be applied to the Darla Samson job.
Direct Material & Labor	$1,500
Overhead	$6,000
Total cost	$7,500
Part 2
	Production	Installation	Customer	Other
		Support
Indirect Labor and Material	96000	72000	48000	24000
	(240000*40%)	(240000*30%)	(240000*20%)	(240000*10%)
Other Indirect Costs	80000	48000	16000	16000
	(160000*50%)	(160000*30%)	(160000*10%)	(160000*10%)
Total T	176000	120000	64000	40000
Activity Driver A	4000	200	100	NA
Activity rate T/A	44	600	640
Overhead to be Applied to Darla Samson's Job
Production (44*60)	2640
Installation	600
customer	640
Overhead applied	3880
total cost to be applied to the Darla Samson job.
Direct Material & Labor	$1,500
Overhead	$3,880
Total cost	$5,380
Part 3
It is over cost using traditional overhead application system as overhead applied in
traditional is mor ethan ABC
		Correct Option
Traditional: Overhead to be Applied to Darla Samson's Job		Option P $6000
ABC: Other Indirect Costs Allocated to Production		Option O $40000
ABC: Other Indirect Costs Allocated to Other		Option N $16000
ABC: Total Costs Allocated to Other		Option O $40000
ABC: Activity Rate for Other		S Not applicable
ABC: Total Cost Applied to Darla Samson's Job		Q:5380
Is Darla Samson's job over-costed or under-costed when using the traditional method?		E Over cost

If any doubt please comment