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	$	165,200		41,300		DLHs
Purchase orders	Number of orders	$	13,020		217		orders
Parts management	Number of part types	$	82,840		109		part types
Board etching	Number of boards	$	92,400		1,680		boards
General factory	Machine-hours	$	128,100		18,300		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)		7,400			24,400			3,500			6,000
Purchase orders (orders)		60			29			45			83
Parts management (part types)		38			18			38			15
Board etching (boards)		340			700			640			0
General factory (MHs)		2,600			6,200			4,000			5,500

Using the ABC data, determine the total amount of overhead cost assigned to each product.

Answer 1

Solution 1&2:

Allocation of overhead using activity based costing
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Product A		Product B		Product C		Product D
					Usage	Allocated Costs	Usage	Allocated Costs	Usage	Allocated Costs	Usage	Allocated Costs
Labor related	$165,200.00	DLHs	41300	$4.00	7400	$29,600	24400	$97,600	3500	$14,000	6000	$24,000
Purchase orders	$13,020.00	Orders	217	$60.00	60	$3,600	29	$1,740	45	$2,700	83	$4,980
Parts management	$82,840.00	Part types	109	$760.00	38	$28,880	18	$13,680	38	$28,880	15	$11,400
Board etching	$92,400.00	Boards	1680	$55.00	340	$18,700	700	$38,500	640	$35,200	0	$0
General factory	$128,100.00	MHs	18300	$7.00	2600	$18,200	6200	$43,400	4000	$28,000	5500	$38,500
Total	$481,560.00					$98,980		$194,920		$108,780		$78,880