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Managerial Accounting (15th Edition)

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Problem
Chapter7,Problem9E Bookmark Showallsteps: ON

SecondStageAllocationtoanOrder

DurbanMetalProducts,Ltd.,oftheRepublicofSouthAfricamakesspecialtymetalpartsused
inapplicationsrangingfromthecuttingedgesofbulldozerbladestoreplacementpartsfor
LandRovers.Thecompanyusesanactivitybasedcostingsystemforinternaldecisionmaking
purposes.Thecompanyhasfouractivitycostpoolsaslistedbelow:

Themanagingdirectorofthecompanywouldlikeinformationconcerningthecostofarecently
completedorderforheavydutytraileraxles.Theorderrequired200directlaborhours,4
hoursofproducttesting,and2salescalls.

Required:

Prepareareportsummarizingtheoverheadcostsassignedtotheorderforheavydutytrailer
axles.Whatisthetotaloverheadcostassignedtotheorder?

Stepbystepsolution

Step1of9

Secondstagesofallocation:

Comment

Step2of9

Theaccomplishmentofactivitybasedcostingiscalledsecondstageallocation.Theactivity
expensesareusedtoapplyoverheadexpensestocustomers.

Comment

Step3of9

InformationgivenbytheDMPlimited:

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11/1/2016 ManagerialAccounting15thEditionTextbookSolutions|Chegg.com

ChapterA Thecompanygiveninformationforitssecondstageallocationofactivitycostpoolsandactivity
ratesfollows:
ChapterB

Chapter1 Activitycostpool Activityrates

Chapter1A
Ordersize $16.85perdirectlaborhours
Chapter2

Chapter2A
Customerorders $320percustomerorders
Chapter2B BOOKS STUDY TUTORS TEST PREP INTERNSHIPS COLLEGES Search

Chapter3 Producttesting $89perproducttestinghour

Chapter7,Problem9E Bookmark Showallsteps: ON
Chapter3A
Selling $1,090persalescall
Chapter3B

Chapter4
Comment
Chapter4A

Chapter4B
Step4of9
Chapter5

Chapter6
Activitycostpool Totalexpectedactivity
Chapter6A

Chapter7 Directlaborhours 200

1AE

1E
Percustomerorders 1

1Q
Producttestinghours 4
1TF

2E Persalescall 2

2Q

3E Comment

3Q

4E
Step5of9
4Q

Calculateactivitybasecost:
5E
Itisgiventhatnumberofdirectlaborhoursrequiredfororderingis$16.85anddirectlabor
5Q
hoursis200
6E Now,calculateactivitybasecostofdirectlabor

6Q
(1)
7E

7Q
Hence,theactivitycostoftheordersizeis
8E

8Q Comment

9E

9Q Step6of9

10E

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11/1/2016 ManagerialAccounting15thEditionTextbookSolutions|Chegg.com

10Q
Calculateactivitycostofthecustomerorders
11E
Itisgiventhatactivityrateofcustomerordersis$320andnumberofcustomerordersinthe
12E totalexpectedactivityis1.

13E
Now,calculateactivitycostofthecustomerorders

14E
(2)
15E

16P BOOKS STUDY Hence,theactivitycostofthecustomerordersis

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17P
Chapter7,Problem9EComment Bookmark Showallsteps: ON
18P

19P

20P
Step7of9

Chapter7A
Calculateactivitycostoftheproducttesting:
Chapter8 Itisgiventhatactivityrateofproducttestingis$89andnumberofproducttestingordersinthe
totalexpectedactivityis4
Chapter9
Now,calculateactivitycostoftheproducttesting
Chapter10

Chapter10A (3)

Chapter10B
Hence,theactivitycostoftheproducttestingis
Chapter11

Chapter11A
Comment
Chapter11B

Chapter12
Step8of9
Chapter13

Chapter13A Calculateactivitycostoftheselling:

Chapter13C Itisgiventhatactivityrateofthesellingis$1,090persellingcallandnumberofsalescallper
ordersis2
Chapter14
Now,calculateactivitycostoftheselling
Chapter14A

Chapter15 (4)

Hence,theactivitycostofthesellingis

Comment

Step9of9

Calculatetotaloverheadcost:

Theactivitycostofthedirectlaboris$3,370(refertoEquation(1)),customerordersis$320
(refertoEquation(2)),producttestingis$356(refertoEquation(3))andsellingis$$2,180
(refertoEquation(4)).

Now,calculatetotaloverheadcostofthecompany

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Hence,thetotaloverheadcostofthecompanyis

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Comment
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Chapter7,Problem9E Bookmark Showallsteps: ON

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