Exercise 4-5 Assigning Overhead to Products in ABC [LO4-2, LO4-3] 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 ExpectedOverhead 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.

Financial & Managerial Accounting

14th Edition

ISBN:9781337119207

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter18: Activity-Based Costing

Section: Chapter Questions

Problem 18.8EX: Identifying activity bases in an activity-based cost system Select Foods Inc. uses activity-based...

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Exercise 4-5 Assigning Overhead to Products in ABC [LO4-2, LO4-3]

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.

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