Question

Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below: Activity Cost Pool Activity Measure Activity Rate Order size Number of direct labor-hours $ 16.40 per direct labor-hour Customer orders Number of customer orders $ 357.00 per customer order Product testing Number of testing hours $ 84.00 per testing hour Selling Number of sales calls $ 1,493.00 per sales call The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 150 direct labor-hours, 16 hours of product testing, and 6 sales calls.

Answer 1

Activity Cost Pool	Activity Measure	Activity Rate (i)	Activity used (ii)	Activity cost applied (i) x (ii)
Order size	Number of direct labor hours	$ 16.40 per direct labor-hour	150 direct labor hours	16.40 x 150 = 2,460
Customer orders	Number of customer orders	$ 357.00 per customer order	1 customer order	357 x 1 = 357
Product testing	Number of testing hours	$ 84.00 per testing hour	16 hours of product testing	84 x 16 = 1,344
Selling	Number of sales calls	$ 1,493.00 per sales call	6 sales calls.	1,493 x 6 = 8,958
Total				$13,119

Total cost = $13,119