Question

Question 1 (11 Marks) Silken Draperies makes custom draperies for homes and businesses. The company uses an activity-based costing system for its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity cost pools: Overhead Costs: Production Cherhead Office Expense Total SINDO SINO Distribution of Resource Consumption: Activity Cost Poole Makis Job Drapes Sport Other Total 39% 45% 20% 100% 5% 65% 30% 100% Production overhead Office expense The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: Activity Cost Peel Makine Drapes Job Support Other Annual activity 2000 metres 160 jobs Not applicable Required: a) Prepare the first stage allocation of overhead costs to the activity cost pools by filling in the table below (4 Marks): Production Overhead b) Compute the activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support activity cost pools by filling in the table below (3 Marks): Making Job Production Churhead Office Expense Total c) Compute the total overhead assigned to a job that involves making 71 metres of drapes. (4 marks)

Answer 1

Ans.

a)

First-stage allocation of overhead costs to the activity cost pools

	Making Drapes	Job Support	Other	Total
Production Overhead	$                         42,000.00	$           54,000.00	$ 24,000.00	$            120,000.00
Office Expense	$                           6,000.00	$           78,000.00	$ 36,000.00	$            120,000.00
Total	$                         48,000.00	$         132,000.00	$ 60,000.00	$            240,000.00

b)

The activity rates (i.e., cost per unit of activity) for the Making Drapes and Job Support activity cost pools

	Making Drapes	Job Support
Activity (a)	2,000 meters	160 Jobs
Production Overhead (b)	$        42,000.00	$    54,000.00
Office Expense (c)	$          6,000.00	$    78,000.00
Production Overhead rate (b /a)	$                21.00	$          337.50
Office Expense rate (c/a)	$                  3.00	$          487.50

	Making Drapes	Job Support
Activity	2,000 meters	160 Jobs
Production Overhead	$                21.00	$          337.50
Office Expense	$                  3.00	$          487.50
Total	$                24.00	$          825.00

c)

The total overhead cost assigned to a job that involves making 71 metres of drapes.

	Making Drapes	Job Support	Total
Activity	71 meters	1 Job
Production Overhead (71 * $ 21) ; (1 * $337.5)	$          1,491.00	$          337.50	$    1,828.50
Office Expense (71 * $ 3) ; (1* $ 487.5)	$              213.00	$          487.50	$        700.50
Total	$          1,704.00	$          825.00	$    2,529.00