Problem 3-18A Contrasting Activity-Based Costing and Conventional Product Costin

Question

Problem 3-18A Contrasting Activity-Based Costing and Conventional Product Costing [LO3-2, LO3-3, LO3-4]

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Adria Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:

  Activity Cost Pool

Activity
Measure

Expected
Overhead Cost

Expected
Activity

  Labor-related

  Direct labor-hours

$

57,000

9,500

DLHs

  Purchase orders

  Number of orders

$

13,500

4,500

orders

  Material receipts

  Number of receipts

$

12,000

1,000

receipts

  Relay assembly

  Number of relays

$

28,000

3,500

relays

  General factory

  Machine-hours

$

252,000

36,000

MHs

Problem 3-18A Part 1

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Problem 3-18A Part 2

Using the ABC data, determine the total amount of overhead cost assigned to each product.

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Adria Company recently implemented an activity-based costing system. At the beginning of the year, management made the following estimates of cost and activity in the company’s five activity cost pools:

Explanation / Answer

Activity cost pool Activity Measure Expected cost($) Expected act, Act. Rate Labor- related Direct Labour- Hr 57000 9500 6 Purchase order Number of orders 13500 4500 3 material receipt Number of receipts 12000 1000 12 Relay assembly Number of relays 28000 3500 8 General Factory Machine Hours 252000 36000 7 Ans2 Activity based costing Product A Product B ProductC ProductD Purchase order 350*3=1050 600*3=1800 2475*3=7425 1075*3=3225 material receipt 330*12=3960 160*12=1920 510*12=6120 0*12=0 Relay assembly 220*8=1760 220*8=1760 1575*8=12600 1485*8=11880

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