Question

Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below:Activity Cost Pool Activity Measure Activity RateOrder size Number of direct labor-hours $17.80 per direct labor-hourCustomer orders Number of customer orders $354.00 per customer orderProduct testing Number of testing hours $72.00 per testing hourSelling Number of sales calls $1,488.00 per sales callThe managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 130 direct labor-hours, 11 hours of product testing, and 5 sales calls.Required:Prepare a report summarizing the overhead costs assigned to the order for heavy-duty trailer axles. What is the total overhead cost assigned to the order?Activity Cost Pool ABC CostOrder size Customer orders Product testing Selling Total overhead cost

Answer 1

The total overhead cost for the heavy-duty trailer axles order at Durban Metal Products is calculated using activity-based costing, resulting in a sum of $10,900.00.

Step-by-step explanation:

The total overhead cost assigned to the Durban Metal Products order for heavy-duty trailer axles can be calculated by applying the activity-based costing (ABC) rates to the corresponding activity measures. We multiply the number of direct labor hours, the number of customer orders, the number of testing hours, and the number of sales calls by their respective activity rates to find each cost pool's total. Then, we add these costs together to obtain the total overhead cost.

• Order size: 130 direct labor-hours × $17.80 per hour = $2,314.00
• Customer orders: 1 customer order × $354.00 per order = $354.00
• Product testing: 11 testing hours × $72.00 per hour = $792.00
• Selling: 5 sales calls × $1,488.00 per call = $7,440.00

Adding these amounts, the total overhead cost for the order is $2,314.00 + $354.00 + $792.00 + $7,440.00 = $10,900.00.

Answer 2

Total Overhead Cost = 10700.00

Step-by-step explanation:

The required objective here is to :

Prepare a report summarizing the overhead costs assigned to the order for heavy-duty trailer axles and What is the total overhead cost assigned to the order?Activity Cost Pool ABC Cost Order size Customer orders Product testing Selling Total overhead cost.

The concept that specifically explains the thesis of this question is called Activity Based Costing

What Activity based costing does is to allocate costs to the activities that are the real cause of the overhead at their initial stage Then, also allocate the cost of those activities only to the products that are specifically demanding the activities.

Now; The Total overhead Cost for the order can be seen as illustrated in the table below.

Serial - Cost - Overhead - Activity (b) ABC Cost (a×b)

Number Center Rate (a)

1 Order size 17.80 130 2314.00

2 Customer order 354.00 1 354.00

3 Product Testing 72.00 11 792.00

4 Selling 1448.00 5 7240.00

Total Overhead Cost 10700.00