Exercise 7A-4 (continued)
2. The activity rates are computed by dividing the costs in the cells of the
first-stage allocation above by the total activity from the top of the
column.
Direct Labor
Support
Order
Processing
Customer
Support
Total activity …………..
20,000 DLHs
400 orders
200 customers
Wages and salaries ….
$6.00
$225.00
$300.00
Other overhead costs .
1.50
25.00
100.00
Total cost ………………
$7.50
$250.00
$400.00
Example: $120,000 ÷ 20,000 DLHs = $6.00 per DLH.
Direct labor support wages and salaries from the first-stage allocation
above.
3. The overhead cost for the order is computed as follows:
Direct
Labor
Support
Order
Processing
Customer
Support
Total
Activity ………………………..
20
DLHs
1
order
1
customer
Wages and salaries ………..
$120.00
$225.00
$300.00
$645.00
Other overhead costs ……..
30.00
25.00
100.00
155.00
Total cost …………………….
$150.00
$250.00
$400.00
$800.00
Example: 20 DLHs × $6.00 per DLH = $120.
Activity rate for direct labor support wages and salaries from part (2)
above.
Exercise 7A-4 (continued)
6. While the company appears to have incurred a loss on its business with
Shenzhen Enterprises, caution must be exercised. The green margin on
the business was $1,200. Advanced Products Corporation really incurred
a loss on this business only if at least $1,200 of the yellow and red costs
Problem 7A-5 (continued)
2. The action analysis report is constructed by using the row totals from
the cost report in part (1) above:
Sales …………………………..…………….
$180,000
Green costs:
Supplies costs …………………………..
$ 6,100
6,100
Green margin ………………………………
173,900
Yellow costs:
Administrative wages and salaries …
84,750
84,750
Yellow margin ……………………………..
89,150
Red costs:
Technical staff salaries ………………..
146,000
Animation equipment depreciation …
14,625
Facility costs …………………………….
6,150
166,775
Red margin …………………………………
$(77,625)
