Activity-based Costing (ABC)
ReebookRealflex produces shoes for circuit training and walking. Recently, the management of the company has decided to adopt the activity-based costing system and has identified three activity cost pools. Information on its annual overhead costs and the activity cost pools are as follows: Activity cost pools ( rate of consumption ) Overhead costs Leather cutting Insole fabrication other Total Production overhead RM240,000 35% 45% 20% 100% Office expense RM160,000 15% 55% 30% 100%
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs. The amount of activity for the year is as follows: Activity Cost Pool Annual Activity Leather cutting 4,000 yards Insole fabrication 100 jobs Other Not applicable
a. Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:
b. Compute the activity rates (i.e., cost per unit of activity) for the leather cutting activity and sole fabrication activity cost pools by filling in the table below:
c. Prepare an action analysis report in good form of a job that involves making 53 pairs of circuit trainers and has direct materials and direct labour cost of RM1,480. The sales revenue from this job is RM5,200. For purposes of this action analysis report, direct materials and direct labour should be classified as a Green cost; production overhead as a Red cost; and office expense as a Yellow cost.
Your tutorial is attached and assumes that each unit uses one yard of material. First allocation and rates are shown.