A 1 2 3 Solver Inc. produces laptop computers. The company makes two different models of laptops, Model A and Model B. Solver uses an activity-based costing system and has the following overhead costs: Indirect factory salaries $520,000 4 Delivery crew wages expense $140,000 5 Delivery vehicle operating expenses $95,000 6 Purchasing expenses $103,000 7 Office expenses $25,000 8 Other expenses $225,000 9 10 Total cost The company uses the following activity cost pools and drivers: $1,108,000 11 12 13 14 15 Activity cost pool Quality control and inspection 16 Delivery and installation 7 Order processing 8 Other Driver Total Activity Model A Model B Number of units 4,800 3,600 1,200 Number of deliveries 1,200 900 300 Number of orders 920 690 230 Not allocated 19 20 Solver Inc. distributes its overheads to cost pools as follows: 21 22 23 Indirect factory salaries 24 Delivery crew wages expense 25 Delivery vehicle operating expenses 26 Purchasing expenses 27 Office expenses 28 Other expenses Quality control and Delivery and Order inspection installation processing Other Total 50% 25% 20% 5% 100% 0% 75% 10% 15% 100% 0% 80% 10% 10% 100% 10% 10% 65% 15% 100% 15% 15% 35% 35% 100% 15% 5% 40% 40% 100% 29 30 Price and direct costs per unit for last year are as follows: 31 Model A Model B 32 33 Selling Price $450.00 $800.00 34 Direct material $200.00 $100.00 35 Direct labour $80.00 $120.00 36 37 Chapter formulas 38 =1 1. Activity rate Total cost in cost pool/total activity level 39 2. Indirect costs applied to cost object = Activity rate x Activity level incurred by cost object 40 41 Required: 42 43 Part 1: Prepare a report showing the first-stage allocation of overhead costs to the activity pools. (5 marks) 44 45 45 Quality control and Delivery and installation inspection Order processing Other Total 46 Indirect factory salaries 47 Delivery crew wages expense 48 Delivery vehicle operating expenses 49 Purchasing expenses 50 Office expenses 51 Other expenses 52 53 Total 54 Part 2: Calculate the activity rates for each cost pool. (3 marks) 55 Activity Cost Pool Quality control and inspection Delivery and installation 56 57 58 59 Order processing 60 Other deliveries and installations and 1 or 57 Quality control and inspection 58 59 60 61 62 Delivery and installation Order processing Other Part 3: A customer purchased 5 Model A laptops. The sale involved 5 inspections, 2 deliveries and installations and 1 order. Compute the product margin using an income statement format. (7 marks) 63 64 65 66 67 68 69 70 71 2 m Product margin (loss) 4 Sheet1 New