Second-Stage Allocation Using the Action Analysis Approach
This exercise should be assigned in conjunction with Exercise 7-6.
The results of the first-stage allocation of the activity-based costing, system at Transvaal Mining Tools Ltd., in which the activity rate, were computed. appear below:
| Order Size | Customer Orders | Product Testing | Selling |
Manufacturing overhead: | ||||
Indirect labor | R 9.60 | R 231 .00 | R 36.00 | R 0.00 |
Factory depreciation | 7.00 | 0.00 | 18.00 | 0.00 |
Factory utilities | 0.20 | 0.00 | 1.00 | 0.00 |
Factory administration | 0.00 | 46.00 | 24.00 | 12.00 |
Selling and administrative: Wages and salaries | 0.80 | 72.00 | 0.00 | 965.00 |
Depreciation | 0.00 | 11.00 | 0.00 | 36.00 |
Taxes and insurance | 0.00 | 0.00 | 0.00 | 49.00 |
Selling expenses | 0.00 | 0.00 | 0.00 | 432.00 |
Total overheadcost | R 17.60 | R360.00 | R79.00 | R 1,494.00 |
Required:
1. Using Exhibit 7A- 3 as a guide. prepare a report showing the overhead cost of the order for hard-rock drills discussed in Exercise 7- 6.What is the total overhead cost of the order?
2. Explain the two different perspectives this report gives to managers concerning the nature of the overhead costs involved in the order. (Him: Look at the row and column totals of the report you have prepared.)
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