Ingersol Draperies Makes Custom Draperies for Homes and Businesses Distribution of Resource Consumption

question 101

Essay

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:
$$\begin{array} { | l | r | } \hline \text { Overhead Costs: } & \\\hline \text { Production overhead } & \$ 120,000 \\\hline \text { Office expense } & 120,000 \\\hline \text { Total } & \$ 240,000 \\\hline\end{array}$$ Distribution of Resource Consumption:
$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Activity Cost Pools }$
$\begin{array}{|l|r|r|r|r|}\hline & \text { Making Drapes } & \text { Job Support } & \text { Other } & \text { Total } \\\hline \text { Production overhead } & 35 \% & 45 \% & 20 \% & 100 \% \\\hline \text { Office expenses } & 5 \% & 65 \% & 30 \% & 100 \% \\\hline\end{array}$

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:
$$\begin{array} { | l | r | } \hline \text { Activity Cost Pool } & \text { Annual Activity } \\\hline \text { Making drapes } & 2,000 \text { metres } \\\hline \text { Job support } & 160 \text { jobs } \\\hline \text { Other } & \text { Not applicable } \\\hline\end{array}$$
Required:
a)Prepare the first-stage allocation of overhead costs to the activity cost pools by filling in the table below:
$$\begin{array} { | l | l | l | l | l | } \hline \text { Answer: } & \text { Making Drapes } & \text { Job Support } & \text { Other } & \text { Total } \\\hline \begin{array} { l } \text { Production } \\\text { overhead }\end{array} & & & & \\\hline \text { Office expense } & & & & \\\hline \text { Total } & & & & \\\hline\end{array}$$
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:
$$\begin{array} { | l | l | l | } \hline & \text { Making Drapes } & \text { Job Support } \\\hline \text { Production overhead } & & \\\hline \text { Office expense } & & \\\hline \text { Total } & & \\\hline\end{array}$$
c)Compute the total overhead assigned to a job that involves making 71 metres of drapes.

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Definitions:

Mutually Agreeable Transactions

Exchanges between parties that both participants consider beneficial or satisfactory.

Laissez-faire

An economic principle advocating minimal governmental interference in the operation of markets and businesses.

Government Intervention

Actions taken by the government to influence economic or social outcomes, such as regulations, subsidies, taxes, or direct control of markets.

Competition

The effort and striving between two or more independent rivals to secure the business of one or more third parties by offering the best possible terms.