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: 3 Activity Cost Pool Labor-related Purchase orders Parts management Board etching General factory Activity Measure Direct labor-hours Number of orders Number of part types Number of boards Machine-hours Expected Overhead Cost $ 269,100 $ 11,000 $ 78,440 $ 85,950 $ 242,400 Expected Activity 29,900 DLHS 220 orders 106 part types 1,890 boards 20,200 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: Activity Cost Pool Labor-related (DLHS) Purchase orders (orders) Parts management (part types) Board etching boards) General factory (Ms) Expected Activity Product Product B Product Product D 7,500 13,400 3,880 5,280 66 30 32 92 29 19 47 11 580 750 560 2,600 7,300 3,700 6,600 Using the ABC data, determine the total amount of overhead cost assigned to each product.

Answer 1

Solution :

(1) Activity Rate :

Activity	Activity OH (a)	Expected Activity (b)	Activity Rate (a / b)
Labor Related	$ 269,100	29,900 DLHs	$ 9 per DLH
Purchases Orders	$ 11,000	220 Orders	$ 50 per Order
Parts Management	$ 78,440	106 Part Types	$ 740 per Part type
Board Etching	$ 85,050	1,890 Boards	$ 45 per Board
General Factory	$ 242,400	20,200 MHs	$ 12 per MH

(2) Overhead Allocation :

Activity	Activity Rate	Overhead Cost Applied (Activity * Activity Rate)
		Product A	Product B	Product C	Product D
Labor Related	$ 9 per DLH	$ 67,500	$ 120,600	$ 34,200	$ 46,800
Purchases Orders	$ 50 per Order	$ 3,300	$ 1,500	$ 1,600	$ 4,600
Parts Management	$ 740 per Part type	$ 21,460	$ 14,060	$ 34,780	$ 8,140
Board Etching	$ 45 per Board	$ 26,100	$ 33,750	$ 25,200	$ 0
General Factory	$ 12 per MH	$ 31,200	$ 87,600	$ 44,400	$ 79,200
Total		$ 149,560	$ 257,510	$ 140,180	$ 138,740

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