Sultan Company uses an activity-based costing system. At the beginning of the ye
ID: 2342041 • Letter: S
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.
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
Explanation / Answer
Answer
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
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
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
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