Question

Sultan Company uses an activity-based costing system. At the beginning of the year, the company made...

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 $ 317,600 39,700 DLHs
Purchase orders Number of orders $ 9,900 220 orders
Parts management Number of part types $ 67,890 93 part types
Board etching Number of boards $ 76,000 1,900 boards
General factory Machine-hours $ 237,600 21,600 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) 6,300 23,700 4,600 5,100
Purchase orders (orders) 70 27 40 83
Parts management (part types) 28 13 32 20
Board etching (boards) 580 700 620 0
General factory (MHs) 3,900 8,900 3,500 5,300

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

Complete this question by entering your answers in the tabs below.

  • Required 1
  • Required 2

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

Activity Cost Pool Activity Rate
Labor-related per DLH
Purchase orders per order
Parts management per part type
Board etching per board
General factory per MH

2.

The equivalent units in the ending work in process inventory will be different under the FIFO and the weighted-average methods of process costing.

T/F?

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Answer #1

1. activity rate for each activity cost pool:

Activity Cost Pool Activity Rate
Labor-related

$8

per DLH
Purchase orders $45 per order
Parts management $730 per part type
Board etching $40 per board
General factory $11 per MH

'Solution :

Activity rate = Expected
Overhead Cost/Expected Activity

Labor-related activity rate = $317600/39700 DLHs

Labor-related activity rate = $8 per DLH

Purchase orders activity rate = $9900/220 orders

Purchase orders activity rate = $45 per order

Parts management activity rate = $67,890/93 part types

Parts management activity rate = $730 per part type

Board etching activity rate = $76000/1900 boards

Board etching activity rate = $40 per board

General factory activity rate = $237600/21600 MHs

General factory activity rate = $11 per MH

2.

Total amount of overhead cost assigned to each product

overhead cost allocated
Activity Cost Pool Product A Product B Product C Product D
Labor-related (DLHs) $50400 $189600 $36800 $40800
Purchase orders (orders) $3150 $1215 $1800 $3735
Parts management (part types) $20440 $9490 $23360 $14600
Board etching (boards) $2320 $28000 $24800 $0
General factory (MHs)

$ 43900

$97900 $38500 $58300

Solution :

Total overhead cost to a product = acti

vity rate * activity used by respective product.

Labor-related:

product A = $8 * 6300 = $ 50400

product B = $8 * 23700 =$189600

product C = $8 * 4600 =$36800

product D = $8 * 5100 =&40800

Purchase orders:

product A = $45 *70 = $3150

product B = $45 * 27 =$1215

product C = $45 *40  =$1800

product D = $45 * 83 =$3735

Parts management:

product A = $730 * 28 = $20440

product B = $730 *13 = $9490

product C = $730 *32 =$23360

product D = $730 * 20=$14600

Board etching:

product A = $40 * 580 = $2320

product B = $40 * 700 = $28000

product C = $40 * 620 =$24800

product D = $40 * 0 =$0

General factory:

product A = $11 * 3900 = $ 43900

product B = $11 * 8900 =$97900

product C = $11 * 3500 =$38500

product D = $11 * 5300 =$58300

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