Question

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 $ 270,900 30,100 DLHs Purchase orders Number of orders $ 11,745 261 orders Parts management Number of part types $ 78,570 97 part types Board etching Number of boards $ 72,400 1,810 boards General factory Machine-hours $ 212,400 17,700 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) 7,100 13,800 4,000 5,200 Purchase orders (orders) 78 37 47 99 Parts management (part types) 38 15 30 14 Board etching (boards) 550 740 520 0 General factory (MHs) 2,900 6,200 3,900 4,700 Using the ABC data, determine the total amount of overhead cost assigned to each product.

Answer 1

1	Activity	Overhead cost	Estimated Activity	Activity Rate
	Labor-related	$270,900	30,100	$9.00	Per DLH
	Purchase orders	$11,745	261	$45.00	Per order
	Parts management	$78,570	97	$810.00	Per part type
	Board etching	$72,400	1,810	$40.00	Per board
	General factory	$212,400	17,700	$12.00	Per MH
		Overhead Cost Assigned
2	Activity Cost Pool	Product A	Product B	Product C	Product D
	Labor-related	$63,900	$124,200	$36,000	$46,800
	Purchase orders	$3,510	$1,665	$2,115	$4,455
	Parts management	$30,780	$12,150	$24,300	$11,340
	Board etching	$22,000	$29,600	$20,800	$0
	General factory	$34,800	$74,400	$46,800	$56,400
	Total	$154,990	$242,015	$130,015	$118,995
	Note: Overhead assigned to each product = Activity rate x Expected activity of each product