Question

Exercise 7-16 Comprehensive Activity-Based Costing Exercise (LO2, LO3, LO4] Cancico Communications has supplied the following data for use in its ABC system: 25 Overhead Costs Wages and salaries Other overhead costs points $295,000 163,000 Total overhead costs $458,000 eBook References Activity Cost Pool Direct labour support Order processing Customer support Other Activity Measure Number of direct labour-hours Number of orders Number of customers These costs are not allocated to products or customers Total Activity 12,110 DLHS 500 orders 120 customers NA Distribution of Resource Consumption across Activity Cost Pools Direct Labour Support 15% 108 Order Processing 40% 258 Customer Support 35% 25% Other 10% Wages and salaries Other overhead costs Total 100% 1008 403

Answer 1

1) First stage allocation

	Direct labor support	Order processing	Customer support	Other	Total
Wages and salaries	44250	118000	103250	29500	295000
Other overhead costs	16300	40750	40750	65200	163000
Total	60550	158750	144000	94700	458000

2) Overhead rate

Activity cost pool	Activity rate
Direct labor support	60550/12110 = 5
Order processing	158750/500 = 317.50 per order
Customer support	144000/120 = 1200 per customer

3) Overhead

Activity cost pool	Activity rate		Activity		ABC Cost
Direct labor support	5	per DLH	108	DLH	540
Order processing	317.50	per order	1	order	317.50
Customer support	1200	per customer	1	Customer	1200
Total					2057.50

4) Calculate following

Sales (180*216)		38880
Costs
Direct material (180*194)	34920
Direct labor (180*.60*24)	2592
Direct labor support	540
Order processing	317.50
Customer support	1200	39569.50
Customer margin		-689.50