Exercise 7-15 Comprehensive Activity-Ba sed Costing Exercise [Lo7-2, LO7-3, LO7-

Question

Exercise 7-15 Comprehensive Activity-Ba sed Costing Exercise [Lo7-2, LO7-3, LO7-4, LO7-5) nced Products Corporation has supplied the following data from its activity-based costing system Overhead Costs Wages and salaries $300,000 Other overhead costs 100,800 Total overhead costs $400,000 Total Activity for the Activity Cost Pool Supporting direct labor Order processing Customer support Other Activity Measure Number of direct labor- hours Number of customer orders Number of customers This is an organization Not applicable Year 20,000 DLHs 400 orders 200 customers sustaining activity Distribution of Resource Consumption Across Activities Order Supporting Direct Labor 40% Customer Processing Support Other Total 100% Wages and salaries 30% 20% 10%

Explanation / Answer

1) FIRST STAGE ALLOCATION OF oh COSTS TO COST POOLS: Supporting Order Customer Overhead costs Direct labor Processing Support Other Total Wages and salaries 120000 90000 60000 30000 300000 Other overhead costs 30000 10000 20000 40000 100000 Total 150000 100000 80000 70000 400000 2) Activity rates: Cost pool Allocated cost Activity Cost per activity unit Supporting direct labor $   1,50,000 20000 $          7.50 Order processing $   1,00,000 400 $     250.00 Customer support $      80,000 200 $     400.00 3) Supporting direct labor = 10*2*7.5 = $            150 Order processing $            250 Customer support $            400 Total OH costs for the order $            800 4) Customer margin: Sales price = 10*300 = $        3,000 Cost: Direct materials = 10*180 = $         1,800 Direct labor = 10*50 = $            500 OH Costs $            800 $        3,100 Customer margin $          -100

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