Question

Exercise 7-9 (Static) Second-Stage Allocation to an Order [LO7-4] 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 Rate Order size Number of direct labor-hours $ 16.85 per direct labor-hour Customer orders Number of customer orders $ 320.00 per customer order Product testing Number of testing hours $ 89.00 per testing hour Selling Number of sales calls $ 1,090.00 per sales call 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 labor-hours, 4 hours of product testing, and 2 sales calls. Required: What is the total overhead cost assigned to the order for heavy-duty trailer axles?

Answer 1

Total allocated cost= $6,226

Step-by-step explanation:

Predetermined activity rate:

Order size= $16.85 per direct labor-hour

Customer orders= $320.00 per customer order

Product testing= $89.00 per testing hour

Selling= $1,090.00 per sales call

The order required 200 direct labor-hours, 4 hours of product testing, and 2 sales calls.

To allocate overhead, we need to use the following formula:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Order size= 16.85*200= 3,370

Customer orders= 320*1= 320

Product testing= 89*4= 356

Selling= 1,090*2= 2,180

Total allocated cost= $6,226