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: Activity Cost Pool Order size Customer orders Product testing Selling Activity Measure Activity Rate Number of direct labor-hours Number of customer orders Number of testing hours Number of sales calls $ 17.30 per direct labor-hour $ 351.00 per customer order $ 77.00 per testing hour $1,487.00 per sales call 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 100 direct labor-hours, 14 hours of product testing, and 5 sales calls Required What is the total overhead cost assigned to the order for heavy-duty trailer axles? ABC Cost Activity Cost Pool Order size Customer orders Product testing Selling Total overhead cost

Explanation / Answer

Activity Cost Pool        ABC cost

Order size                      $1,730

Customer orders            $351

Product testing               $1,078

Selling                            $7,435

Total                              $ 10,594

Calculations

Order size           = $17.30per direct labor-hour x 100 direct labor-hours = $1,730

Customer orders = $351 per customer order x 1customer order      = $351

Product testing = $77 per product testing hour x 14 product testing hours = $1,078

Selling = $1,487 per sales call x 5 sales calls = $7,435

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