Durban Metal Products Ltd of South Africa makes speciality metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activitybased costing system for internal decision-making purposes. The company has four activity cost pools as listed below:

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 200 direct labour-hours, 4 hours of product testing and 2 sales calls.

Required
1. Prepare a report showing the overhead cost of the order for heavy-duty trailer axles according to the activity-based costing system. What is the total overhead cost of the order according to the activity-based costing system?
2. Explain the two different perspectives this report gives to managers concerning the nature of the overhead costs involved in the order.

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Activity cost pool Order size Customer orders Product testing Selling Activity measure Number of direct labour-hours Number of customer orders Number of testing hours Number of sales calls The results of the first-stage allocation of the activity-based costing system, in which the activity rates were computed, appear below: Manufacturing: Indirect labour Factory depreciation Factory utilities Order size R8.25 8.00 0.10 Customer orders R180.00 0.00 0.00 Product testing R30.00 40.00 1.00 Selling RO.00 0.00 0.00