Exercise 3-5 Assigning Overhead to Products in ABC [LO3-2, LO3-3]

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	$	231,600	38,600	DLHs
Purchase orders	Number of orders	$	15,015	231	orders
Parts management	Number of part types	$	95,200	112	part types
Board etching	Number of boards	$	106,800	1,780	boards
General factory	Machine-hours	$	184,500	20,500	MHs

Required:

1.

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

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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

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2.	The expected activity for the year was distributed among the companys four products as follows:

	Expected Activity
Activity Cost Pool	Product A	Product B	Product C	Product D
Labor-related (DLHs)	4,500	26,600	3,500	4,000
Purchase orders (orders)	70	37	32	92
Parts management (part types)	32	19	48	13
Board etching (boards)	360	790	630	0
General factory (MHs)	4,000	7,700	2,800	6,000

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

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	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

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