Question

Adria Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:

Activity Cost Pool	Activity Measure	Expected Overhead Cost		Expected Activity
Labor-related	Direct labor-hours	$	30,000	7,500	DLHs
Purchase orders	Number of orders	$	10,200	3,400	orders
Material receipts	Number of receipts	$	8,800	800	receipts
Relay assembly	Number of relays	$	12,000	2,400	relays
General factory	Machine-hours	$	172,000	43,000	MHs

Problem 4-18 Part 1

Required:

1. Compute the activity rate for each of the activity cost pools.

Problem 4-18 Part 2

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)	2,500	800	3,750	450
Purchase orders (orders)	150	450	1,360	1,440
Materials receipts (receipts)	360	152	288	0
Relay assembly (relays)	360	360	720	960
General factory (MHs)	16,750	1,900	8,600	15,750

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

Answer 1

Activity Rate (A/B) 1) Computation of Activity Rates for each activity cost pool :- Estimated Expected Activity cost pool Overhead Cost (A) Activity (B) Labor related 30,000 7,500 Purchase orders 10,200 3,400 Material receipts 8,800 800 Relay assembly 12,000 2,400 General factory 172,000 43,000 Total 233,000 4.00 Per direct labor hour 3.00 Per order 11.00 Per receiot 5.00 Per relays 4.00 Per machine hour Product D Overhead Product C Expected Activity (3) Expected assigned to 2) Computation of Total overhead cost assigned to each product :- Product A Overhead Activity Rate Activity cost pool Expected assigned to Product A Activity (1) (A*1) Labor related 4.00 2,500 10,000 Purchase orders 3.00 150 450 Material receipts 11.00 360 3,960 Relay assembly 5.00 360 1,800 General factory 4.00 16,750 67,000 Total 83,210 Overhead assigned to Product B (A2) 3,200 1,350 Activity (4) Product B Expected Activity (2) 800 450 152 360 1,900 Product D (A*4) 1,800 4,320 450 Overhead assigned to Product C (A*3) 15,000 4,080 3,168 3,600 34,400 60,248 1,440 3,750 1,360 288 720 8,600 1,672 1,800 960 4,800 7,600 15,750 63,000 73,920 15,622