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 Expected Measure Overhead Expected Activity Cost Pool Cost Activity Labor-related Direct labor-hours $380,000 38.000 DLHS Purchase orders Number of orders $11.935 217 orders Parts Number of part $ 79,500 1 06 part types management types Board etching Number of boards $93.000 1,860 boards General factory Machine-hours $240,500 18.500 MHS Required: 1. Compute the activity rate for each of the activity cost pools. Activity Cost Pool Labor-related Purchase orders Activity Rate per DLH per order Parts management per part type per board Board etching General factory per MH

Answer 1

1. Activity rate for each of the activity cost pools [Refer working note 1]
Activity Cost Pools	Activity Rate
Labor-related	$10	per DLH
Purchase orders	$55	per order
Parts management	$750	per part type
Board etching	$50	per board
General factory	$13	per MH

.

.

2. Total amount of overhead cost assigned to each product     [Refer working note 2]
Activity Cost Pool	Product A	Product B	Product C	Product D
Labor-related (DLHs)	$54,000	$247,000	$38,000	$41,000
Purchase orders (orders)	$2,805	$1,925	$2,640	$4,565
Parts management (part types)	$26,250	$10,500	$31,500	$11,250
Board etching (boards)	$29,500	$36,500	$27,000	$0
General factory (MHs)	$33,800	$111,800	$26,000	$68,900

.

.

Working note 1 - Calculation of Activity rate
Activity Cost Pool	Expected Overhead Cost (a)	Expected Activity (b)		Activity rate (a / b)
Labor-related	$380,000	38,000	direct labor-hours	$10.00	per DLH
Purchase orders	$11,935	217	orders	$55.00	per order
Parts management	$79,500	106	part types	$750.00	per part type
Board etching	$93,000	1,860	boards	$50.00	per board
General factory	$240,500	18,500	Machine-hours	$13.00	per MH

.

.

Working note 2 - Allocation of Overhead to each product using activity rates:
Activity Cost Pool	Activity Rate [Refer working note 1]		Product A			Product B			Product C			Product D
			Expected activity		Overhead assigned	Expected activity		Overhead assigned	Expected activity		Overhead assigned	Expected activity		Overhead assigned
	(a)		(b)		(a x b)	(c)		(a x c)	(d)		(a x d)	(e)		(a x e)
Labor-related	$10.00	per DLH	5,400	direct labor-hours	$54,000	24,700	direct labor-hours	$247,000	3,800	direct labor-hours	$38,000	4,100	direct labor-hours	$41,000
Purchase orders	$55.00	per order	51	orders	$2,805	35	orders	$1,925	48	orders	$2,640	83	orders	$4,565
Parts management	$750.00	per part type	35	part types	$26,250	14	part types	$10,500	42	part types	$31,500	15	part types	$11,250
Board etching	$50.00	per board	590	boards	$29,500	730	boards	$36,500	540	boards	$27,000	-	boards	$0
General factory	$13.00	per MH	2,600	Machine-hours	$33,800	8,600	Machine-hours	$111,800	2,000	Machine-hours	$26,000	5,300	Machine-hours	$68,900
Total overhead assigned					$146,355			$407,725			$125,140			$125,715