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	$	284,000		35,500		DLHs
Purchase orders	Number of orders	$	6,790		194		orders
Parts management	Number of part types	$	71,340		82		part types
Board etching	Number of boards	$	57,900		1,930		boards
General factory	Machine-hours	$	229,900		20,900		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)		3,000			22,800			3,900			5,800
Purchase orders (orders)		43			20			48			83
Parts management (part types)		22			15			32			13
Board etching (boards)		530			750			650			0
General factory (MHs)		3,600			7,300			3,900			6,100

Answer 1

1) Activity rate

	Activity rate
Labor related	284000/35500 = 8 per DLH
Purchase orders	6790/194 = 35 per order
parts managements	71340/82 = 870 per parts
Board etching	57900/1930 = 30 per board
General factory	11 per MH

2) Overhead cost distributed

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			Total
Labor-related (DLHs)		24000			182400			31200			46400		284000
Purchase orders (orders)		1505			700			1680			2905		6790
Parts management (part types)		19140			13050			27840			11310		71340
Board etching (boards)		15900			22500			19500			0		57900
General factory (MHs)		39600			80300			42900			67100		229900
Total		100145			298950			123120			127715		649930