Question

(The following information applies to the questions displayed below.) Rusties Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company's five activity cost pools: Activity Cost Pool Labor-related Purchase orders Product testing Template etching General factory Activity Measure Direct labor-hours Number of orders Number of tests Number of templates Machine-hours Expected Overhead Cost $ 23,980 $ 530 $ 4,200 $ 1,035 $ 34,400 Expected Activity 2,180 DLHS 530 orders 350 tests 45 templates B, 600 MAS Exercise 4-11 Part 1 Required: 1. Compute the activity rate for each of the activity cost pools. Activity Rate per DLH per order Activity Cost Pool Labor-related Purchase orders Product testing Template etching General factory per test per template per MH

Answer 1

Solution

Rusties Company

1. Computation of the activity rate for each of the activity cost pools:

Activity Cost Pool	Activity Rate
Labor-related	$11 per DLH
Purchase-orders	$1 per purchase order
Product testing	$12 per test
Template etching	$23 per template
General factory	$4 per MH

Computations:

Activity rate = expected overhead cost/expected activity
Activity Cost Pool	Expected Overhead Cost	Expected Activity	Activity Rate
Labor-related	$23,980	2,180 DLHs	$11 per DLH
Purchase-orders	$530	530 orders	$1 per purchase order
Product testing	$4,200	350 tests	$12 per test
Template etching	$1,035	45 templates	$23 per template
General factory	$34,400	8,600 MH	$4 per MH

2. Determination of the total amount of overhead cost assigned to each product:

	Total Overhead Cost
Product A	$19,255
Product B	$7,974
Product C	$16,165
Product D	$20,751

Computations:

Overhead cost assigned to each product:
Product A
Activity Cost Pool	Expected Activity Usage	Activity rate	Assigned overhead cost
Labor-related	625 DLHs	$11 per DLH	$6,875
Purchase orders	100 orders	$1 per order	$100
Product Testing	190 tests	$12 per test	$2,280
template etching	0	$23 per template	0
general factory	2,500	$4 per MH	$10,000
total overhead cost assigned to Product A			$19,255

Product B
Activity Cost Pool	Expected Activity Usage	Activity rate	Assigned overhead cost
Labor-related	155 DLHs	$11 per DLH	$1,705
Purchase orders	160 orders	$1 per order	$160
Product Testing	65 tests	$12 per test	$780
template etching	23	$23 per template	$529
general factory	1,200	$4 per MH	$4,800
total overhead cost assigned to Product B			$7,974

Product C
Activity Cost Pool	Expected Activity Usage	Activity rate	Assigned overhead cost
Labor-related	700 DLHs	$11 per DLH	$7,700
Purchase orders	120 orders	$1 per order	$120
Product Testing	0 tests	$12 per test	0
template etching	15	$23 per template	$345
general factory	2,000	$4 per MH	$8,000
total overhead cost assigned to Product C			$16,165

Product D
Activity Cost Pool	Expected Activity Usage	Activity rate	Assigned overhead cost
Labor-related	700 DLHs	$11 per DLH	$7,700
Purchase orders	150 orders	$1 per order	$150
Product Testing	95 tests	$12 per test	$1,140
template etching	7	$23 per template	$161
general factory	2,900	$4 per MH	$11,600
total overhead cost assigned to Product D			$20,751