Question

Rusties Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:



Activity Cost Pool Activity Measure Expected
Overhead
Cost Expected Activity
Labor-related Direct labor-hours $ 19,250 1,375 DLHs
Purchase orders Number of orders $ 1,820 455 orders
Product testing Number of tests $ 6,320 395 tests
Template etching Number of templates $ 960 40 templates
General factory Machine-hours $ 68,600 9,800 MHs
The expected activity for the year was distributed among the company’s four products as follows:
Activity Cost Pool Expected Activity
Product A Product B Product C Product D
Labor-related (DLHs) 650 125 300 300
Purchase orders (orders) 20 65 180 190
Product testing (tests) 250 65 0 80
Template etching (templates) 0 26 10 4
General factory (MHs) 3,800 2,000 1,200 2,800
Using the ABC data, determine the total amount of overhead cost assigned to each product.


Product A

Product B

Product C

Product D

Answer 1

Answer:

Product A    = $ 39780  

Product B = $ 17674  

Product C  = $13560

Product D= $ 10936  

Explanation:

Activity Cost Pool                                      Expected Activity

                                  Product A        Product B       Product C        Product D

Labor                            9100                 1750                4200                 4200

Purchase orders             80                    260                720                   760

Product testing              4000               1040               0                        1280

Template etching             0                    624                 240                     496

General factory           26600              14,000            8400                 19,600

Total                             39780              17674               13560                10936    

Working

Activity Cost Pool                                      Expected Activity

                                  Product A        Product B       Product C        Product D

Labor-related (DLHs)      650*14        125*14          300*14              300*14

Purchase orders (orders) 20*4            65*4            180*4                 190 *4

Product testing (tests)      250*16        65*16            0*16                80*16

Template etching (templates) 0*24      26*24         10*24                4*24

General factory (MHs)        3,800*7     2,000*7      1,200*7         2,800*7

Direct Labor Hours Rate=  Direct labor-hours / No . of Hours

                                         = $ 19,250/ 1375= 14

Purchase Order rate= Purchase orders/ Number of orders  

                                 = $ 1,820  /  455 orders

                                   =4

Product testing rate   =Product testing /Number of tests

                                     =$ 6,320/  395 tests

                                      =16

Template etching rate= Template etching / Number of templates  

                                      =$ 960 /40 templates

                                           =24

General factory rate = General factory/   Machine-hours  

                                  = $ 68,600/9,800 MHs

                                  = 7