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What is the Cost Allocation for Esmail Company?

Esmail Company is a wholesale distributor that uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system:

Overhead costs:
Wages and salaries 370,000
Other expenses 230,000
Total 600,000

Distribution of resource consumption:
Activity Cost Pools
Filling Orders Customer Support Other Total
Wages and salaries 50% 45% 5% 100%
Other expenses 30% 60% 10% 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 Activity
Filling orders 5,000 orders
Customer support 60 customers

Reference: 8-1

To the nearest whole dollar, how much wages and salaries cost would be allocated to a customer who made 6 orders in a year?


What would be the total overhead cost per order according to the activity based costing system? In other words, what would be the overall activity rate for the filling orders activity cost pool? (Round to the nearest whole cent.)

Solution Preview

Wages and salaries allocated to filling orders is 370,000X50%=185,000
Total filling orders is 5,000. Cost per order is 185,000/5,000=37. For 6 orders the cost is ...

Solution Summary

The solution explains the cost allocation under activity based costing system with calculations and answers.