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Activity Based Costing

Please help with the attached Activity Based Costing problem.

BA Systems Inc. uses activity based costing data for internal decisions. The company has the following four activity pools:

Activity Cost Pool Annual Activity
Producing units.... 5,000 machine hours
Processing orders... 1,000 orders
Customer support... 200 customers
Other.... NA

The "Other" activity cost pool consists of the costs of idle capacity and organization sustaining costs.
The company traces the costs of direct materials and direct labor to jobs (i.e. orders). Overhead costs - both manufacturing and non manufacturing - are allocated to jobs using activity based costing system. These overhead costs are listed below:

Indirect factory wages.... $100,000
Other manufacturing overhead... $200,000
Selling and admin expenses... $400,000

To develop the company's activity based costing system, employees were asked how they distributed their time and resources across four activity cost pools. The results of those interviews appear below:

Units Orders Support Other Totals
Indirect factory wages... 40% 30% 10% 20% 100%
Other manufacturing overhead... 30% 10% 0% 60% 100%
Selling and admin expenses... 0% 25% 40% 35% 100%

a. Using the results of the interviews, carry out the first stage allocation of costs to the activity cost pools.

Units Orders Support Other Totals
Indirect factory wages... $____¬¬__ $____¬¬__ $____¬¬__ $____¬¬__ $____¬¬__
Other manufacturing overhead... $____¬¬__ $____¬¬__ $____¬¬__ $____¬¬__ $____¬¬__
Selling and admin expenses... $____¬¬__ $____¬¬__ $____¬¬__ $____¬¬__ $____¬¬__

b. Using the results from the first stage allocation, compute the activity rates for each of the activity cost pools. (Activity rates are not computed for the "Other" activity cost pool because these costs will not be allocated to products or customers.)

Computation of Activity Rates
Activity Cost Pools Total Cost Total Activity Activity Rate
Producing units.... $____¬¬__ ____¬¬__ machine hours $____¬¬__ Per Machine
Processing orders... $____¬¬__ ____¬¬__ Orders $____¬¬__ Per Order
Customer support... $____¬¬__ ____¬¬__ Customers $____¬¬__ Per Customer

C. Data concerning one of the company's products is listed below:

Product W562
Selling Price.... $100
Annual Sales (units)... 1,000
Direct materials per unit... $24
Direct labor per unit... $6
Machine hours per unit.... 1.5
Orders processed.... 80

Using the activity rates you derived in part (b) above and the above data, compute the total amount of overhead cost that would be allocated to produce W562.

Overhead Cost of Product W562
Activity Cost Pools Activity Rate Activity ABC Cost
Producing units.... $____¬¬__ per machine hour ____¬¬__ machine hours $____¬¬__
Processing orders... $____¬¬__ per order ____¬¬__ Orders ____¬¬__ Customer support... $____¬¬__ per customer Not applicable ____¬¬__
Total...... $____¬¬__

d. Using the data developed above for product W562, complete the following report.

Product Margin - Product W562
Sales.... $__________
Costs:
Direct materials..... $__________
Direct labor..... __________
Producing units.... __________
Processing orders..... __________ __________
Product margin.... $__________

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BA Systems Inc. uses activity based costing data for internal decisions. The company has the following four activity pools:

Activity Cost Pool Annual Activity
Producing units.... 5,000 machine hours
Processing orders... 1,000 orders
Customer support... 200 customers
Other.... NA

The "Other" activity cost pool consists of the costs of idle capacity and organization sustaining costs.
The company traces the costs of direct materials and direct labor to jobs (i.e. orders). Overhead costs - both manufacturing and non manufacturing - are allocated to jobs using activity based costing system. These overhead costs are listed below:

Indirect factory wages.... $100,000
Other manufacturing overhead... $200,000
Selling and admin expenses... $400,000

To develop the company's activity based costing system, employees were asked how they distributed their time and resources across four activity cost pools. The results of those interviews appear below:

Units Orders Support Other Totals
Indirect factory wages... 40% 30% 10% 20% 100%
Other manufacturing overhead... 30% 10% 0% 60% 100%
Selling and admin expenses... 0% 25% 40% 35% 100%

a. Using the results of the interviews, carry out the first stage ...

Solution Summary

The solution explains various calculations relating to an activity based costing system

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