Question

Cancico Communications has supplied the following data for use in its ABC system:

Overhead Costs
Wages and salaries	$	285,000
Other overhead costs		159,000
Total overhead costs	$	444,000

Activity Cost Pool	Activity Measure	Total Activity
Direct labour support	Number of direct labour-hours	8,085	DLHs
Order processing	Number of orders	450	orders
Customer support	Number of customers	120	customers
Other	These costs are not allocated      to products or customers	NA

	Distribution of Resource Consumption across Activity Cost Pools
	Direct Labour Support			Order Processing			Customer Support			Other			Total
Wages and salaries		20	%		35	%		30	%		15	%		100	%
Other overhead costs		15	%		25	%		25	%		35	%		100	%

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	$	226	per unit
Units ordered		160	units
Direct materials	$	197	per unit
Direct labour-hours		0.6	DLH per unit
Direct labour rate	$	31	per DLH

Required:

1. Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places.)

3. Prepare a report showing the overhead costs for the order from HurnTel, including customer support costs. (Round your answers to 2 decimal places.)

4. Prepare a report showing the customer margin for HurnTel. (Round your answers to 2 decimal places.)

Answer 1

First stage allocation

	Distribution of Resource Consumption across Activity Cost Pools
	Direct Labour Support			Order Processing			Customer Support			Other			Total
Wages and salaries		57000			99750			85500			42750			285000
Other overhead costs		23850			39750			39750			55650			159000
Total		80850			139500			125250			98400			444000

b) Activity rate

	Activity rate
Direct labor support (80850/8085)	10 per hour
Order processing (139500/450)	310 per order
Customer support (125250/120)	1043.75 per customer

c) Total overhead

	Total overhead
Direct labor support (80850/8085)*96	960
Order processing (139500/450)	310
Customer support (125250/120)	1043.75
Total	2313.75

d) Customer margin

Sales (226*160)	36160
Direct material (160*197)	31520
Direct labor (160*.60*31)	2976
Overhead	2313.75
Customer margin	649.75