Question

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	$	174,000		34,800		DLHs
Purchase orders	Number of orders	$	7,200		240		orders
Parts management	Number of part types	$	66,500		95		part types
Board etching	Number of boards	$	64,800		1,620		boards
General factory	Machine-hours	$	115,200		14,400		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)		6,800			18,800			4,300			4,900
Purchase orders (orders)		72			28			41			99
Parts management (part types)		35			13			34			13
Board etching (boards)		330			780			510			0
General factory (MHs)		2,300			6,000			2,100			4,000

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

	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

Answer 1

(1) Compute the activity rate for each of the activity cost pools:-

Activity Cost Pool	Expected	Expected Activity (B)	Activity rate
	Overhead Cost (A)		(A/B)
Labor-related	$     174,000	34,800	$5 per DLH
Purchase orders	$        7,200	240	$30 per order
Parts management	$      66,500	95	$700 per part type
Board etching	$      64,800	1,620	$40 per board
General factory	$     115,200	14,400	$8 per MH

(2) Determine the total amount of overhead cost assigned to each product:

Activity Cost Pool

Product A

Product B

Product C

Product D

Labor-related (DLHs)

(6,800 * $5) =$34000

(18,800 * $5) =$94000

(4,300 * $5) =$21500

(4,900 * $5) =$24500

Purchase orders (orders)

(72 * $30) =$2160

(28 * $30) =$840

(41 * $30) =$1230

(99 * $30) =$2970

Parts management (part types)

(35 * $700) =$24500

(13 * $700) =$9100

(34 * $700) =$23800

(13 * $700) =$9100

Board etching (boards)

(330 * $40) =$13200

(780 * $40) =$31200

(510 * $40) =$20400

0

General factory (MHs)

(2,300 * $8) =$18400

(6,000 * $8) =$48000

(2,100 * $8) =$16800

(4,000 * $8) =$32000

Total

$92260

$183140

$83730

$68570