Question

Advanced Products Corporation has supplied the following data from its activity-based costing system: Overhead Costs Wages and salaries Other overhead costs Total overhead costs $ 300,000 100,000 $ 400,000 Activity Cost Pool Supporting direct labor Order processing Customer support Other Activity Measure Number of direct labor-hours Number of customer orders Number of customers This is an organization- sustaining activity Total Activity for the Year 20,000 DLHS 400 orders 200 customers Not applicable Distribution of Resource Consumption Across Activities Supporting Order Direct Labor Processing Wages and salaries 300 Other overhead costs Customer Support 201 200 401 Other 100 40 Total 1001 100 300 During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow Data Concerning the Shenzhen Enterprises Order Units ordered 10 units Direct labor-hours 2 DLHS per unit Selling price 3 300 per unit Direct materials $ 180 per unit Direct labor $50 per unit Required: 1. Prepare a report showing the first stage allocations of overhead costs to the activity cost pools 2. Compute the activity rates for the activity cost pools. 3. Calculate the total overhead costs for the order from Shenzhen Enterprises including customer support costs.

Answer 1

Solution 1:

First stage allocation of cost to activity cost pools
Particulars	Supporting direct labor		Order Processing		Customer Support		Other		Total Cost
	%	Amount	%	Amount	%	Amount	%	Amount
Wages and salaries	40%	$1,20,000	30%	$90,000	20%	$60,000	10%	$30,000	$3,00,000
Other oevrhead	30%	$30,000	10%	$10,000	20%	$20,000	40%	$40,000	$1,00,000
Total		$1,50,000		$1,00,000		$80,000		$70,000	$4,00,000

Solution 2:

Determination of activity rate for each activity
Activity	Estimated Overhead Cost	Usage of Activity Base	Activity Rate
				Supporting direct labor	$1,50,000	20000	$7.50
Order Processing	$1,00,000	400	$250.00
Customer Support	$80,000	200	$400.00
Other	$70,000	NA

Solution 3:

		Allocation to Job
Particulars	Activity rate	Base	Allocation
Supporting direct labor	$7.50	20	$150
Order Processing	$250.00	1	$250
Customer Support	$400.00	1	$400
Total Overhead Assigned			$800

Solution 4:

Customer Margin - Activity based costing
Particulars		Amount
Revenue		$3,000
Costs:
Direct materials	$1,800
Direct Labor	$500
Supporting direct labor	$150
Order Processing	$250
Customer Support	$400
Total Cost		$3,100
Customer Margin		-$100

Answer 2

ORDER IS CANCELLED