Question

Product costs using activity rates

Hercules Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

Activity	Activity Rate
Fabrication	$35	per machine hour
Assembly	$35	per direct labor hour
Setup	$86	per setup
Inspecting	$17	per inspection
Production scheduling	$16	per production order
Purchasing	$7	per purchase order

The activity-base usage quantities and units produced for each product were as follows:

Activity Base	Elliptical Machines		Treadmill
Machine hours	750		500
Direct labor hours	199		254
Setups	46		46
Inspections	36		46
Production orders	60		55
Purchase orders	385		146
Units produced	460		350

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below.

Open spreadsheet

Use the activity rate and usage information to calculate the total activity cost and activity cost per unit for each product. If required, round the per unit answers to the nearest cent.

	Total Activity Cost	Activity Cost Per Unit
Elliptical Machines	$	$
Treadmill	$	$

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

answer Activity Treadmill Activity Cost allocated to treadmill 500 254 199 5 Fabrication 5 Assembley - Set Up B Inspecting Production Scheduling o Purchasing Alocation of Activity Cost Elliptical Cost allocated Activity Rate Machine to elliptical Activities 750 26250 6965 3956 612 960 2695 41438 460 90.08 17500 8890 3956 782 880 1022 33030 350 2 No. of units produced 3 Cost per unit 94.37 5 Thus the final answer is Total Activity Cost 41438 33030 Activity Cost Per unit 90.08 94.37 7 Elliptical Machines 8 Treadmill