Sultan Company uses an activity-based costing system At the beginning of the yea

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: Measure Activity Cost Pool Cost 44,500 DLHs Direct labor-hours Number of orders Number of part types Number of boards Machine-hours S 311,500 S s 63,700 1820 boards Labor-related Purchase orders Parts management 8,840 221 orders 71,280 99 part types Board etching General factory S 148,000 14,800 MHs 1. Compute the activity rate for each of the activity cost pools Activity Cost Pool Labor-related Purchase orders Parts management Board etching General factory Activity Rate per DLH per order per part type per board per MH 2. The expected activity for the year was distributed among the company's four products as follows Expected Activity Activity Cost Pool Labor-related (DLHs) Purchase orders (orders) Parts management (part types) Board etching (boards) General factory (MHs) Product A Product B Product C 6,80027,300 4,600 49 t D 5,800 92 15 0 2.100 6,300 2,400 4,000 51 34 500 29 17 770 550 Using the ABC data, determine the total amount of overhead cost assigned to each product Overhead Cost Assigned Product C Activity Cost Pool Product A Product EB Product D Labor-related (DLHs) Purchase orders (orders) Parts management (part types) Board etching (boards) General factory (MHs) Total

Explanation / Answer

1) Computation of activity rate for each of activity cost pools :

Per DLH

Determination of total amount of overhead costs assigned to each prodcuts :

Activity cost pool Activity rate Labour related =311500/44500= $7

Per DLH

Purchase orders =8840/221 = $40 Per order parts management =71280/99 = $720 Per part type Boards etching =63200/1820 = $35 per board General factory =148000/14800 = $10 Per MH

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