Question

Activity Budgeted Activity Cost
Production $500,000
Setup $144,000
Inspection $44,000
Shipping $115,000
Customer service $84,000
Total $887,000

The activity bases identified for each activity are as follows:

Activity Activity Base
Production Machine hours
Setup Number of setups
Inspection Number of inspections
Shipping Number of customer orders
Customer service Number of customer service requests

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

Machine Number of Number of Number of Customer Units
Hours Setups Inspections Customer Service
Orders Requests
White Sugar 5,000 85 220 1,150 60 10,000
Brown Sugar 2,500 170 330 2,600 350 5,000
Powdered Sugar 2,500 195 550 2,000 190 5,000
Total 10,000 450 1,100 5,750 600 20,000

Each product requires 0.5 machine hour per unit.

Required:

1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products.

Answer 1

Answer:

Activity Rate = Activity Cost/ Driver Costs= $ 500,000/10,000= 50

    Activity             Budgeted         Budgeted      Budgeted

                            Activity Cost       Cost Driver      Activity Rate

Production       $500,000                    10,000                    50

Setup              $144,000                       450                         320

Inspection      $44,000                       1100                           40

Shipping         $115,000                     5750                          20

Customer service $84,000              600                            140

Total            $887,000

                              White               Brown        Powdered      Total

                                Sugar              Sugar            Sugar  

Units                        10,000              5000            5000      20,000

Production              250,000         125,000       125,000     500,000

Setup                   $ 27200              54,400         62400      144,000

Inspection          $ 8800                13200               22000      44000

Shipping               $ 23000            52,000            40,000       115000

Customer service   $ 8400           49,000            26,600      $ 84,000        

Total                       $ 317,400       $ 293,600        $276,000   $887,000

Per Unit Cost           $ 31.74              $58.72         $ 55

Working

                                White               Brown        Powdered      Total

                                Sugar              Sugar            Sugar  

Machine Hours  5000                   2500             2500           10,000

Production             *50                   *50               *50

                            $ 250,000           $ 125,000     $ 125,000

Number of setups  85                    170                 195             450

Setup                       * 320               * 320              * 320

                             27,200              54,400            62,400

Number of inspections  220           330              550             1100

Inspection                     *40               *40                 *40

                                   8800             13200            22000

Number of customer     1150           2600           2000          5750

Orders  

Shipping                          *20             *20               *20

                                       23,000       52000             40,000  

Number of customer  60                350                190           600

Service Requests

Customer service      *140            *140                 *140

                                   8400          49000            26,600

Units                        10,000              5000            5000      20,000