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	$	380,000	38,000	DLHs
Purchase orders	Number of orders	$	11,935	217	orders
Parts management	Number of part types	$	79,500	106	part types
Board etching	Number of boards	$	93,000	1,860	boards
General factory	Machine-hours	$	240,500	18,500	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)	5,400	24,700	3,800	4,100
Purchase orders (orders)	51	35	48	83
Parts management (part types)	35	14	42	15
Board etching (boards)	590	730	540	0
General factory (MHs)	2,600	8,600	2,000	5,300

  

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

Answer 1

1.

The correct answer is

Activity Cost Pool	Activity	Expected		Expected		Activity Rate ( Activity Measure / Expected Activity)
	Measure	Overhead Cost		Activity
Labor-related	Direct labor-hours	$	3,80,000	38,000	DLHs	10
Purchase orders	Number of orders	$	11,935	217	orders	55
Parts management	Number of part types	$	79,500	106	part types	750
							Board etching	Number of boards	$	93,000	1,860	boards	50
General factory	Machine-hours	$	2,40,500	18,500	MHs	13

2. The total amount of overhead cost assigned to each product.

Product A = $ 1,46,355

Product B = $ 4,07,725

Product C= $ 1,25,140

Product D = $ 1,25,715

Note :

Activity Cost Pool	Activity Measure	Activity Rate	Product A Activity	Overhead ( Activity Rate * Activity)
Labor-related	Direct labor-hours	10	5,400	54,000
Purchase orders	Number of orders	55	51	2,805
Parts management	Number of part types	750	35	26,250
Board etching	Number of boards	50	590	29,500
General factory	Machine-hours	13	2,600	33,800
				1,46,355
Activity Cost Pool	Activity Measure	Activity Rate	Product B Activity	Overhead ( Activity Rate * Activity)
Labor-related	Direct labor-hours	10	24,700	2,47,000
Purchase orders	Number of orders	55	35	1,925
Parts management	Number of part types	750	14	10,500
Board etching	Number of boards	50	730	36,500
General factory	Machine-hours	13	8,600	1,11,800
				4,07,725
Activity Cost Pool	Activity Measure	Activity Rate	Product C Activity	Overhead ( Activity Rate * Activity)
Labor-related	Direct labor-hours	10	3,800	38,000
Purchase orders	Number of orders	55	48	2,640
Parts management	Number of part types	750	42	31,500
Board etching	Number of boards	50	540	27,000
General factory	Machine-hours	13	2,000	26,000
				1,25,140
Activity Cost Pool	Activity Measure	Activity Rate	Product D Activity	Overhead ( Activity Rate * Activity)
Labor-related	Direct labor-hours	10	4,100	41,000
Purchase orders	Number of orders	55	83	4,565
Parts management	Number of part types	750	15	11,250
Board etching	Number of boards	50	-	-
General factory	Machine-hours	13	5,300	68,900
				1,25,715