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 Cost Pool	Activity Measure	Expected Overhead Cost			Expected Activity
Labor-related	Direct labor-hours	$	400,000		40,000		DLHs
Purchase orders	Number of orders	$	11,150		223		orders
Parts management	Number of part types	$	82,820		101		part types
Board etching	Number of boards	$	73,800		1,640		boards
General factory	Machine-hours	$	279,500		21,500		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:

	Expected Activity
Activity Cost Pool	Product A			Product B			Product C			Product D
Labor-related (DLHs)		6,700			23,300			4,300			5,700
Purchase orders (orders)		63			39			36			85
Parts management (part types)		37			15			38			11
Board etching (boards)		300			760			580			0
General factory (MHs)		3,900			8,800			2,500			6,300

Using the ABC data, determine the total amount of overhead cost assigned to each product.

Answer 1

Answer

• All working forms part of the answer
• Requirement 1

Activity Cost Pool	Activity Measure	Expected Overhead cost	Expected Activity		Activity Rates = ANswer
		[A]	[B]		[A/B]
Labor-related	Direct labor-hours	$                400,000.00	40,000	DLHs	$                   10.00	per DLHs
Purchase orders	Number of orders	$                  11,150.00	223	orders	$                   50.00	per orders
Parts management	Number of part types	$                  82,820.00	101	part types	$                 820.00	per part types
Board etching	Number of boards	$                  73,800.00	1,640	boards	$                   45.00	per boards
General factory	Machine-hours	$                279,500.00	21,500	MHs	$                   13.00	per MHs

• Requirement 2

Overhead allocated to each product is provided in sequence

--Product A

	Expected Activity	Activity Rates		Overhead Allocated
Activity Cost Pool	Product A
Labor-related (DLHs)	6,700	$                           10.00	per DLHs	$         67,000.00
Purchase orders (orders)	63	$                           50.00	per orders	$           3,150.00
Parts management (part types)	37	$                        820.00	per part types	$         30,340.00
Board etching (boards)	300	$                           45.00	per boards	$         13,500.00
General factory (MHs)	3,900	$                           13.00	per MHs	$         50,700.00
Amount of Overhead Cost assigned				$       164,690.00

---Product B

	Expected Activity	Activity Rates		Overhead Allocated
Activity Cost Pool	Product B	[A/B]
Labor-related (DLHs)	23,300	$                           10.00	per DLHs	$       233,000.00
Purchase orders (orders)	39	$                           50.00	per orders	$           1,950.00
Parts management (part types)	15	$                        820.00	per part types	$         12,300.00
Board etching (boards)	760	$                           45.00	per boards	$         34,200.00
General factory (MHs)	8,800	$                           13.00	per MHs	$       114,400.00
Amount of Overhead Cost assigned				$       395,850.00

---Product C

	Expected Activity	Activity Rates		Overhead Allocated
Activity Cost Pool	Product C	[A/B]
Labor-related (DLHs)	4,300	$                           10.00	per DLHs	$         43,000.00
Purchase orders (orders)	36	$                           50.00	per orders	$           1,800.00
Parts management (part types)	38	$                        820.00	per part types	$         31,160.00
Board etching (boards)	580	$                           45.00	per boards	$         26,100.00
General factory (MHs)	2,500	$                           13.00	per MHs	$         32,500.00
Amount of Overhead Cost assigned				$       134,560.00

---Product D

	Expected Activity	Activity Rates		Overhead Allocated
Activity Cost Pool	Product D	[A/B]
Labor-related (DLHs)	5,700	$                           10.00	per DLHs	$         57,000.00
Purchase orders (orders)	85	$                           50.00	per orders	$           4,250.00
Parts management (part types)	11	$                        820.00	per part types	$           9,020.00
Board etching (boards)	-	$                           45.00	per boards	$                        -
General factory (MHs)	6,300	$                           13.00	per MHs	$         81,900.00
Amount of Overhead Cost assigned				$       152,170.00

Answer 2

1)	Calculation of Activity Rates
	Activity Cost pool	Expected OH	Expected Activity	Activity Rate
	Labour related	400,000	40,000	10.00	per DLH
	Purchase Orders	11,150	223	50.00	per ORDER
	Parts Management	82,820	101	820.00	per part type
	Board Etching	73,800	1,640	45.00	per board
	General Factory	279,500	21,500	13.00	per MH
2)	Overehad cost assigned to each   product
	Activity Cost pool	Activity Rate	Product A Activity	Cost assigned to product A	Product B Activity	Cost assigned to product B	Product C Activity	Cost assigned to product C	Product D Activity	Cost assigned to product D
	Labour related	10.00	6,700	67,000	23,300	233,000	4,300	43,000	5,700	57,000
	Purchase Orders	50.00	63	3,150	39	1,950	36	1,800	85	4,250
	Parts Management	820.00	37	30,340	15	12,300	38	31,160	11	9,020
	Board Etching	45.00	300	13,500	760	34,200	580	26,100	-	-
	General Factory	13.00	3,900	50,700	8,800	114,400	2,500	32,500	6,300	81,900
	Total Cost assigned			164,690		395,850		134,560		152,170