Question

EXERCISE 7-9 Second Stage Allocation to an Order 107-4 Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes, The company has four activity cost pools as listed below: Activity Cost Pool der size ................ Customer orders ........... Product testing .... Selling ................... Activity Measure Number of direct lobor-hours Number of customer orders Number of testing hours Number of sales calls Activity Rate $16.85 per direct labor-hour $320.00 per customer order $89.00 per testing hour $1,090.00 per sales call The managing director of the company would like information concerning the cost of a recently completed order for heavy duty trailer axles. The order required 200 direct labor hours, 4 hours of product testing, and 2 sales calls. Required: What is the total overhead cost assigned to the order for heavy-duty trailer axles?

Answer 1

Activity Cost Pool	Activity Measure	Activity Rate	Activity Used	Overhead Allocated
Order size	Number of direct labor hours	$16.85 per direct labor hour	200 direct labor hours	16.85 x 200 = 3,370
Customer orders	Number of customer orders	$320 per customer order	1 customer order	320 x 1 = 320
Product testing	Number of testing hours	$89 per testing hour	4 testing hour	89 x 4 = 356
Selling	Number of sales calls	$1,090 per sales call	2 sales call	1,090 x 2 = 2,180
Total				$6,226

Total Overhead cost assigned = $6,226

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