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	$	156,000		26,000		DLHs
Purchase orders	Number of orders	$	11,000		220		orders
Parts management	Number of part types	$	80,000		100		part types
Board etching	Number of boards	$	90,000		2,000		boards
General factory	Machine-hours	$	180,000		20,000		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)		6,000			11,000			4,000			5,000
Purchase orders (orders)		60			30			40			90
Parts management (part types)		30			15			40			15
Board etching (boards)		500			900			600			0
General factory (MHs)		3,000			8,000			3,000			6,000

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

• Required 1
• Required 2

Compute the activity rate for each of the activity cost pools.

Activity Cost Pool	Activity Rate
Labor-related		per DLH
Purchase orders		per order
Parts management		per part type
Board etching		per board
General factory		per MH

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

	Overhead Cost Assigned
Activity Cost Pool	Product A	Product B	Product C	Product D
Labor-related (DLHs)
Purchase orders (orders)
Parts management (part types)
Board etching (boards)
General factory (MHs)
Total

Answer 1

Compute the activity rate for each of the activity cost pools.

	Activity Cost Pool Activity Rate Labor-related 6 per DLH Purchase orders 50 per order Parts management 800 per part type Board etching 45 per board General factory 9 per MH

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

	Overhead Cost Assigned Activity Cost Pool Product A Product B Product C Product D Labor-related (DLHs) 36000 66000 24000 30000 Purchase orders (orders) 3000 1500 2000 4500 Parts management (part types) 24000 12000 32000 12000 Board etching (boards) 22500 40500 27000 0 General factory (MHs) 27000 72000 27000 54000 Total 112500 192000 112000 100500