Durban Metal Products, Ltd., of the Republic of South Africa makes specialty met

Question

Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company has four activity cost pools as listed below:

The managing director of the company would like information concerning the cost of a recently completed order for heavy-duty trailer axles. The order required 170 direct labor-hours, 14 hours of product testing, and 4 sales calls.

The results of the first-stage allocation of the activity-based costing system at Durban Metal Products, Ltd., in which the activity rates were computed, appear below:

Prepare a report showing the overhead cost of the order for heavy-duty trailer axles. What is the total overhead cost of the order?

  Activity Cost pool   Activity Measure Activity Rate   Order size   Number of direct labor-hours $ 17.70   per direct labor-hour*   Customer orders   Number of customer orders $ 364.00   per customer order   Product testing   Number of testing hours $ 85.00   per testing hour   Selling   Number of sales calls $ 1,488.00   per sales call

Explanation / Answer

Report showing the overhead cost of the order for heavy-duty trailer axles:

Order Size Customer Orders Product Testing Selling Total Total activity for the order 170 1 14 4 Direct labor-hours Customer Order Product testing hours Sales Calls Manufacturing overhead: Indiect Labor 1683 250 518 0 2451 Factory depreciation 1122 0 266 0 1388 Factory utilities 51 0 28 0 79 Factory administration 0 43 378 28 449 Selling and administrative: Wages and salaries 153 65 0 3888 4106 Depreciation 0 6 0 128 128 Taxes and insurance 0 0 0 216 216 Selling Expenses 0 0 0 1692 1692 Total overhead cost 3009 764 1190 5952 10509

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