Ken's Carpets Sells Carpet for Both Residential and Business Use

question 8

Essay

Ken's Carpets sells carpet for both residential and business use.To better estimate costs,the company recently adopted an activity-based costing system.Last year,the company incurred $300 000 in overhead costs.Based on an intense study of their company,the following activities,allocation bases,and percentages of overhead costs were determined:
$\begin{array}{ll}\text { Activity } & \text { Allocation Base }&\text { Proportion of Overhead Cost } \\\hline \text { Purchasing } & \text { Number of purchase orders } &25\%\\\text { Materials processing } & \text { Number of square feet }&50\% \\\text { Sales } & \text { Numher of sales orders }&25\%\end{array}$

The number of activities for residential and business is as follows:
$\begin{array}{lrr} &\underline{\text { Residential}} &\underline{ \text { Business} } \\ \text {Number of purchase orders } &700&500\\ \text { Number of square feet } &4000000&2000000\\\text { Numher of sales ntrlere }&400&100\end{array}$

Required:
A. Calculate the tatal cverhead that should be allocated to each af the three actrites.
B. Calculate the averhead rates for each of the three activities.
C. If a particular residential job reqquires 4 purchase arders and 1 sales arder far tatal af 1500 square feet of carpet how much cverhead should be allocated to the job?

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Definitions:

Division of Labor

This term refers to the assignment of different parts of a manufacturing process or task to different people in order to improve efficiency.

Cultural Diffusion

The process through which cultural elements, such as beliefs, technologies, and customs, spread from one society or cultural group to another.

Repressive State Control

Methods used by a government to control its citizens and maintain authority through restrictions and suppressing dissent.

Mobilized Opposition

Organized efforts to counter an initiative, policy, or legislation, often involving grassroots campaigning, protests, or lobbying.