5-33

5-33 First-stage allocation, activity-based costing, manufacturing sector. Thurgoad Devices uses activity-based costing to allocate overhead costs to customer orders for pricing purposes. Many customer orders are won through competitive bidding. Direct material and direct manufacturing labor costs are reports the following yearly overhead costs: Wages and salaries S480,000 Rent 120000 240,000 Other overhead Total overhead costs S900,000 Thurgood has established four activity cost pools: Activity Cost Pool Activity Measure Total Activity for the Year Direct manufacturing labor Number of direct manufacturing 30,000 direct manufacturing labor-hours support Order processin Number of customer orders 500 orders Design support Number of custom designs 100 custom designs 0the Facility-sustaining costs allocated 30,000 direct manufacturing to orders based on direct labor hours manufacturing labor-hours Only about 20% of Thurgood's yearly orders require custom designs Paul Moeller, Thurgaod's controller, has prepared the following estimates for distribution of the over- head casts across the four activity cost pools: Design Direct Manufacturing Order Labor Support Processing Support 0ther Total Wages and salaries 20% 25% 30% 5% 100% 15% 50% 100% 10% Depreciation 35% 100% 35% 15% 100% Other overhead 20% 188 CHAPTER 5 ACTIVITY BASED COSTING AND ACTMTY-BASED MANAGEMENT Order 448200 required SI550 of direct materials, 80 direct manufacturing labor-hours, and one custom Required 1. Allocate the overhead costs to each activity cost pool. Calculate the activity rate for each pool. 2. Determine the cost of0rder448200, 3 How does activity-based casting enhance Thurgood's ability to price its orders? Suppose Thurgood used a traditional costing system to allacate all averhead costs to orders an the basis of direct manu- facturing labor-hours. How might this have affected Thurgood s pricing decisions