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	$	158,800		39,700		DLHs
Purchase orders	Number of orders	$	11,605		211		orders
Parts management	Number of part types	$	90,470		109		part types
Board etching	Number of boards	$	99,000		1,980		boards
General factory	Machine-hours	$	139,300		19,900		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			23,100			4,200			5,700
Purchase orders (orders)		43			36			39			93
Parts management (part types)		24			19			50			16
Board etching (boards)		590			740			650			0
General factory (MHs)		3,700			8,200			2,900			5,100

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

Answer 1

Solution

1.

Activity cost pool	Activity Rate	Calculations
Labor related	$4 DLH	$158800/39700
Purchase orders	$55 per order	$11605/211
Parts management	$830 per part type	$90470/109
Board etching	$50 per board	$99000/1980
General factory	$7 per MH	$139300/19900

2

Activity cost pool	Product A	Product B	Product C	Product D
Labor related	6700*4 =26800	23100*4 =92400	4200*4 =16800	5700*4 =22800
Purchase orders	43*55=2365	36*55=1980	39*55=2145	93*55=5155
Parts management	24*830=19920	19*830=15770	50*830=4150	16*830=13280
Board etching	590*50=29500	740*50=37000	650*50=32500	0
General factory	3700*7=25900	8200*7=57400	2900*7=20300	5100*7=35700
Total overheads	104485	204550	75895	32853