Question

Raymond Company produces a variety of bicycles. One of its plants produces two bicycles: a mountain model and a racing model. At the beginning of the year, the following data were prepared for this plant:

In addition, the following information was provided so that overhead costs could be assigned to each product:

Raymond Company uses activity-based costing to calculate product costs.

Required:

A. Calculate the per unit product cost for a mountain bike.
B. Calculate the per unit product cost for a racing bike.
C. Assume Armstrong Company adds 35% to the cost of a mountain bike and 40% to the

cost of a racing bike obtain the selling prices. Calculate the selling prices for a mountain bike and a racing bike.

	Mountain	Racing
Quantity	220,000	125,000
Selling Price	$1,200	$1,000
Unit Prime Cost	$ 400	$ 450

Activity Name	Activity Driver	Activity Cost	Mountain	Racing
Machining	Machine hours	$20,000,000	250,000	250,000
Engineering	Engineering hours	$ 8,000,000	75,000	50,000
Packing	Packing orders	$ 3,500,000	50,000	125,000

Answer 1

		mountain		racing
activity name	rate	activity	cost	activity	cost
machining	40	2,50,000	1,00,00,000	2,50,000	1,00,00,000
engineering	64	75,000	48,00,000	50,000	32,00,000
packing	20	50,000	10,00,000	1,25,000	25,00,000
total			1,58,00,000		1,57,00,000

Machining rate = 20,000,000 / 500,000 = 40 per machine hour

Engineering rate = 8,000,000 / 125,000 = 64 per engineering hour

Packing rate = 3,500,000 / 175,000 = 20 per packing order

particular	mountain	racing
unit prime cost	400	450
unit overhead cost	71.81	125.6
unit product cost	471.81	575.6
selling price	636.94	805.8