Question

EEl uses ABC to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging Setup Assembly 603 Inspecting and Finishing 156 Packaging Salaries Supplies Factory expense Total 1000 100 100 The activity cost drivers for the two products are summarized below. Activities Setup Assembly Inspect and finishing Packaging Activity Driver Batch Unita Finishing hours Packing hours Batehes Units Finishing hours, per unit Packaging hours, per unit Materials per unit Safe-V 240 59,000 0.30 0.20 $ 4.00 Safe-T 590 71.000 0.20 0.10 $ 5 Required: 1. Determine the amount of the cost pool for each of the four activities. 2. Determine the activity-driver rates for assigning factory costs to the two products. 3. Determine the activity-based unit cost for each of the products.

Answer 1

Part 1

	Factory costs	setup	assembly	Inspecting & Finishing	packaging
Salaries	849000	169800	509400	127350	42450
Supplies	149000	37250	89400	22350	0
Factory expense	549000	0	494100	54900	0
	1547000	$207050	$1092900	$204600	$42450

	setup	assembly	Inspecting & Finishing	packaging
Salaries	20%*849000	60%*849000	15%*849000	5%*849000
Supplies	25%*149000	60%*149000	15%*149000
Factory expense		90%*549000	10%*549000

Part 2

	Activity driver rates
Set up	$249.46 per batch
Assembly	$8.41 per unit
Inspecting & Finishing	$6.41 per finishing hour
Packaging	$2.25 per packaging hour

Activity cost pools	amount	Cost drivers	Total activity consumption	Activity driver rates
Set up	$207050	Number of batches	830	$249.46 per batch
Assembly	$1092900	Number of units	130000	$8.41 per unit
Inspecting & Finishing	$204600	Number of finishing hours	31900	$6.41 per finishing hour
Packaging	$42450	Number of packaging hours	18900	$2.25 per packaging hour

(59000*0.3)+(71000*0.20) = 31900

(59000*0.2)+(71000*0.10) =18900

Part 3

	Safe-V	Safe-T
Activity-based cost per unit	$15.82	$15.34

	Safe-V	Safe-T
Set up	1.04	0.42
Assembly	8.41	8.41
Inspecting & Finishing	1.92	1.28
Packaging	0.45	0.23
Materials per unit	4	5
Activity-based cost per unit	$15.82	$15.34

249.46/240 = 1.04

249.46/590 = 0.42

6.41*0.3 = 1.92

6.41*0.2 = 1.28

2.25*0.2= 0.45

2.25*0.1=0.23