Question

Question 2 (12 Marks) Shadow Awnings makes custom awnings 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 Office e pense Total $150,000 $100,000 $250,000 Distribution of resource consumption Activitat Pools Making Awning Support Production owerhead 45% 40% Office expense 69% Other 15% 27% Total 100% 100% 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: Making Awnings Job Support Other Annual Atits 5.000 metres 200 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): Produd Office b) Compute the activity rates (i.e., cost per unit of activity) for the Making Awnings and Job Support activity cost pools by filling in the table below (3 Marks): Making Awnings Production Overhead Office Expense Total c) Prepare an income report in good form of a job that involves making 80 meters of awnings and has direct materials and direct labour cost of $3,000. The sales revenue from this job is $4,000. (5 Marks)

Answer 1

Answer

a) Allocation of overhead costs to activity cost pools

Particulars    Making awnings($) Job support($) others ($) total($)

Production overhead 67500    60000 22500 150000

Office expenses 8000 65000 27000 100000

Total 75500   125000    49500   250000

b) Computation of Activity rates

Particulars Making awnings(in $) Job support(in $)

Production overhead 67500 60000

office expenses 8000 65000

Total (a) 75500   125000

Annual activity (b) 5000 meters 200 jobs

Activity rates(a/b) 15.1 625

c) Income Report

Particulars Amount(in $)

Sales Revenue 4000

Less: Direct material and labour 3000

1000   

Less:Making awnings cost (80meters*15.1) (1208)

Job cost (625)

Net Loss 833   

Since the end result is negative, it is better not to accept the job.