Question

Cancico Communications has supplied the following data for use in its ABC system:

Overhead Costs
Wages and salaries	$	295,000
Other overhead costs		163,000
Total overhead costs	$	458,000

Activity Cost Pool	Activity Measure	Total Activity
Direct labour support	Number of direct labour-hours	12,110	DLHs
Order processing	Number of orders	500	orders
Customer support	Number of customers	120	customers
Other	These costs are not allocated      to products or customers	NA

	Distribution of Resource Consumption across Activity Cost Pools
	Direct Labour Support			Order Processing			Customer Support			Other			Total
Wages and salaries		15	%		40	%		35	%		10	%		100	%
Other overhead costs		10	%		25	%		25	%		40	%		100	%

During the year, Cancico Communications completed an order for special telephone equipment for a new customer, HurnTel. This customer did not order any other products during the year. Data concerning that order follow:

Selling price	$	216	per unit
Units ordered		180	units
Direct materials	$	194	per unit
Direct labour-hours		0.6	DLH per unit
Direct labour rate	$	24	per DLH

Required:

1. Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

3. Prepare a report showing the overhead costs for the order from HurnTel, including customer support costs. (Round your answers to 2 decimal places.)

4. Prepare a report showing the customer margin for HurnTel. (Round your answers to 2 decimal places.)

Answer 1

Solution 1:

First stage allocation of cost to activity cost pools
Particulars	Total Cost	Direct labor support		Order processing		Customer support		Others
		%	Amount	%	Amount	%	Amount	%	Amount
Wages and salaries	$2,95,000.00	15%	$44,250.00	40%	$1,18,000.00	35%	$1,03,250.00	10%	$29,500.00
Other Overhead costs	$1,63,000.00	10%	$16,300.00	25%	$40,750.00	25%	$40,750.00	40%	$65,200.00
Total	$4,58,000.00		$60,550.00		$1,58,750.00		$1,44,000.00		$94,700.00

Solution 2:

Determination of activity rate for each activity
Activity	Estimated Overhead Cost	Usage of Activity Base	Activity Rate
				Direct Labor support	$60,550.00	12110	$5.00
Order processing	$1,58,750.00	500	$317.50
Customer Support	$1,44,000.00	120	$1,200.00
Other	$94,700.00
Total	$4,58,000.00

Solution 3:

Computation of Overhead Cost for Customer
Particulars	Amount
Direct Labor support (180*0.6*$5)	$540.00
Order processing	$317.50
Customer Support	$1,200.00
Total Cost	$2,057.50

Solution 4:

Customer Margin - Activity based costing
Particulars		Amount
Revenue		$38,880.00
Costs:
Diorect materials	$34,920.00
Direct labor	$2,592.00
Overhead	$2,057.50
Total Cost		$39,569.50
Customer Margin		-$689.50