Question

Exercise 7-16 Comprehensive Activity-Based Costing Exercise (LO2, LO3, LO4) Cancico Communications has supplied the following data for use in its ABC system: Overhead Costs Wages and salaries Other overhead costs $267,500 152,000 Total overhead costs $419,500 Activity Cost Pool Direct labour support Order processing Customer support Other Activity Measure Number of direct labour-hours Number of orders Number of customers These costs are not allocated to products or customers Total Activity 7,630 DLHS 450 orders 110 customers Distribution of Resource Consumption across Activity cost Pools Direct Labour Support 20% 15% Other Order Processing 35% 25% Customer Support 30% 25% Wages and salaries Other overhead costs Total 100% 100% 35% 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 Units ordered $ 224 per unit 125 units

Answer 1

Part 1

	Direct labour support	Order processing	Customer support	other	Totals
Wages and salaries	$53500	$93625	$80250	$40125	$267500
Other overhead costs	22800	38000	38000	53200	152000
Total cost	$76300	$131625	$118250	$93325	$419500

267500*20%=53500

267500*35%=9325

267500*30%=80250

267500*15%=40125

152000*15%=22800

152000*25%=38000

152000*35%=53200

Part 2

Activity Cost Pools	(a) Total Cost	(b) Total Activity	(a) ÷ (b)Activity Rate
Direct labour support	76300	7630 DLHs	$10.00 per DLH
Order processing	131625	450 orders	$292.50 per order
Customer support	118250	110 customers	$1075.00 per customer

Part 3

Activity cost pool	Activity rate		activity		ABC Cost
Direct labour support	10	Per DLH	75	DLHS	750
Order processing	292.50	Per order	1	Orders	292.50
Customer support	1075.00	Per customer	1	Customers	1075
Total					$2117.50

125*0.6= 75

Part 4

Sales (125*224)		28000
Costs:
Direct materials (125*197)	24625
Direct labor (125*0.6*24)	1800
Direct labor support overhead	750
Order processing overhead	292.50
Customer support overhead	1075	28542.50
Customer margin		$(542.50)