Chapter 5, Problem 5.18P

To determine

Concept introduction:

First stage allocations:

The financial statement of the company classifies the cost department wise. Therefore, it is necessary to allocate the cost to different activities in order to build a relationship between the activity and the costing.

Requirement 1:

Prepare a report showing the first-stage allocation of the costs to the activity cost pools.

To determine

Concept introduction:

Activity rate:

The activity rate is determined by dividing the net activity cost, with the total number of activities. The calculation of the activity rate is the second step in the implementation of activity-based costing. After establishing the relationship between the overheads and the activity, the management has to ascertain the activity rate for that specific activity.

Requirement 2:

Calculate the activity rate for the given activity cost pools.

To determine

Concept introduction:

Activity-based costing (ABC):

Activity-based costing refers to the method of costing where the overhead cost is assigned to various products. This costing method identifies the relationship between the manufacturing overhead costs and the activities. After establishing the relationship, the indirect cost is allocated to the products.

Requirement 3:

Calculate the total cost and the average cost of the given jobs.

To determine

Concept introduction:

Activity-based costing (ABC):

Activity-based costing refers to the method of costing where the overhead cost is assigned to various products. This costing method identifies the relationship between the manufacturing overhead costs and the activities. After establishing the relationship, the indirect cost is allocated to the products.

Requirement 4:

Explain whether the present policy of binding of jobs is reasonable.