Phoenix Company Makes Custom Covers for Air Conditioning Units for Homes

question 4

Essay

Phoenix Company makes custom covers for air conditioning units 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 Awnings 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 50 yards of covers and has direct materials and direct labor cost of $1,500.The sales revenue from this job is $2,500.
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.
$\begin{array}{llcc} \text { Overhead costs:} &\\ \text { Production overhead.... } &\$100.000\\ \text { Office expense...............} &\underline{50,000}\\ \text {Total............................. } &\underline{\$150,000}\\\end{array}$
$\text { Distribution of resource consumption: }$

$\begin{array}{ccccc}&\text { Making}& \text { Job }\\ \text { Activity Cost Pools } & \text { Covers } & \text { Support } & \text { Other } & \text { Total } \\\text { Production overhead .......... } & 40 \% & 42 \% & 18 \% & 100 \% \\\text { Office expense..................... } & 12 \% & 60 \% & 28 \% & 100 \%\end{array}$ $$\begin{array} { l r } \text { Activity Cost Pool } & \text { Annual Activity } \\\text { Making covers } & 2,500 \text { yards } \\\text { Job support } &200 \text { jobs } \\\text { Other }&\text { Not applicable }\end{array}$$ $$\begin{array} { | l | l | l | l | l | } \hline & \begin{array} { c } \text { Making } \\\text { Covers }\end{array} & \begin{array} { c } \text { Job } \\\text { Support }\end{array} & \text { Other } & \text { Total } \\\hline \text { Production overhead.......... } & & & & \\\hline \text { Office expense ................. } & & & & \\\hline \text { Total ....................... } & & & & \\\hline\end{array}$$ $\begin{array}{|l|r|r|}\hline & \text { Makinn Covers} & \text { Job Support } \\\hline \text { Activity ........................ } & & \\\hline \text { Production overhead........ } & & \\\hline \text { Office expense ................. } & & \\\hline \text { Total ..................... } & & \\\hline \end{array}$

---

Definitions:

Formula

A mathematical relationship or rule expressed in symbols, often used to solve problems or to define scientific laws and principles.

Market Value

The existing rate at which a service or asset might be sold or acquired in the market.

Interest Rate

The share of a loan attributed as interest to the borrower, commonly expressed as an annual rate of the outstanding loan amount.

Present Discounted Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.