Ingersol Draperies makes custom draperies for homes and businesses.The company uses an activity-based costing system for its overhead costs.The company has provided the following data concerning its annual overhead costs and its activity cost pools.
The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs.
The amount of activity for the year is as follows:
Required:
a.Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:
b.Compute the activity rates (i.e. ,cost per unit of activity)for the Making Drapes and Job Support activity cost pools by filling in the table below:
c.Prepare an action analysis report in good form of a job that involves making 71 yards of drapes and has direct materials and direct labor cost of $2,510.The sales revenue from this job is $4,400.
For purposes of this action analysis report,direct materials and direct labor should be classified as a Green cost;production overhead as a Red cost;and office expense as a Yellow cost.

Question

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The Answer is

\begin{array}{llcc} ext { Overhead costs:} &\ ext { Production overhead.... } &\$120.000\ ext { Office expense...............} &\underline{120,000}\ ext {Total............................. } &\underline{\$240,000}\\end{array}

ext {Distribution of resource consumption:}

\begin{array}{c} ext { Activity Cost Pools }\\begin{array}{ccccc}& ext { Making}& ext { Job }\ & ext { Darpes } & ext { Support } & ext { Other } & ext { Total } \ ext { Production overhead .......... } & 35 \% & 45 \% & 20 \% & 100 \% \ ext { Office expense..................... } & 5 \% & 65 \% & 30 \% & 100 \%\end{array}\end{array}

\begin{array} { l r } ext { Activity Cost Pool } & ext { Annual Activity } \ ext { Making covers } & 2,000 ext { yards } \ ext { Job support } &160 ext { jobs } \ ext { Other }& ext { Not applicable }\end{array}

\begin{array} { | l | l | l | l | l | } \hline & \begin{array} { c } ext { Making } \ ext { Covers }\end{array} & \begin{array} { c } ext { Job } \ ext { Support }\end{array} & ext { Other } & ext { Total } \\hline ext { Production overhead.......... } & & & & \\hline ext { Office expense ................. } & & & & \\hline ext { Total ....................... } & & & & \\hline\end{array}

\begin{array} { | l | l | l | } \hline & ext { Making Drapes } & ext { Job Support } \\hline ext { Activity .......................... } & & \\hline ext { Production overhead ........ } & & \\hline ext { Office expense ................ } & & \\hline ext { Total ........................ } & & \\hline\end{array}

a.

ext { First-stage allocation}

\begin{array}{lrrrr}& ext { Making } & ext { Job } \& ext { Drapes } & ext { Support } & ext { Other }\ ext { Production overhead ....... } & \$ 42,000 & \$54,000 & \$ 24,000 & \$ 120,000 \ ext { Office expense ........... } &\underline{ 6,000} & \underline{78,000} &\underline{ 36,000} & \underline{120,000} \ ext { Total ........ } &\underline{ \$ 48,000} &\underline{ \$ 132,000} & \underline{\$ 60,000} &\underline{ \$ 240,000}\end{array}

b.

ext {Activity rates (costs divided by activity)}

\begin{array}{lrrrl}& ext { Making Drapes} & ext { Job Support } \ ext {Activity..........................} & 2,000\quad ext { yards } & 160\quad ext { jobs }\ ext { Production overhead ....... } & \$ 21.00 \quad ext { per yard } & \$ 2337.50\quad ext { per job } \ ext { Office expense ................. } & \underline{3.00} \quad ext { per yard} & \underline{487.50} \quad ext { per job } \ ext { Total ............................... } & \underline{\$ 24.00} \quad ext { per yard } &\underline{ \$ 825.00 }\quad ext { per job }\end{array}

c.

ext {Overhead cost of the job.}

\begin{array}{lrrr}& ext { Making Drapes }& ext { Job Support}& ext {Total }\ ext {Activity............................. }&71& 1\\ ext { Production overhead ........ } & \$ 1,491,00 & \$337,50 & \$ 1,828.50\ ext { Office expense ............... } &\underline{ 213.00 }& \underline{487.50} & \underline{700.50} \ ext { Total ...................... } &\underline{ \$ 1,704.00}& \underline{\$ 825.00} &\underline{ \$ 2,529.00}\end{array}

\begin{array}{llcc} ext {Sales................................. } &\$4,400.00\ ext { Green costs: } &\ ext { Direct materials and labor..... } &\underline{2,510.00}&\underline{2,510.00}\ ext { Green margin......................... } &&1,890.00\ ext { Yellow costs:} &\ ext { Office expense....................... } &\underline{700.50}&\underline{700.50}\ ext { Yellow margin...................... } &&1,190.50\ ext { Red costs: } &\ ext {Production overhead.............. } &\underline{1,828.50}&\underline{1,828.50}\ ext { Red margin........................... } &&\underline{\$(638.00)}\ ext { } &\\end{array}

Ingersol Draperies Makes Custom Draperies for Homes and Businesses