Question

Exercise 4-8 Computing ABC Product Costs (L04-2, LO4-3) The following information applies to the questions displayed below.) Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow: Direct Labor-Hours per unit 0.60 0.20 Annual Production 22,000 units 80,000 units Rims Posts Additional information about the company follows: a. Rims require $14 in direct materials per unit, and Posts require $10. b. The direct labor wage rate is $15 per hour. c. Rims are more complex to manufacture than Posts and they require special equipment. d. The ABC system has the following activity cost pools: Estimated Activity Activity Cost Pool Machine setups Special processing General factory Posts 280 Activity Measure Number of setups Machine-hours Direct labor-hours Estimated Overhead Cost $ 27,200 $ 130,400 $1,056,000 Rims 120 5,000 5,000 Total 400 5,000 66,000 61,000 Exercise 4-8 Part 1 Required: 1. Compute the activity rate for each activity cost pool. (Round vour answers to 2 decimal places.)

Answer 1

Requirement 1

	Activity rate
Machine setups	$             68.00	Per setup
Special processing	$             26.08	Per machine hour
General factory	$             16.00	Per Direct labor hour

Requirement 2

	Cost per Unit
Rims	$                    32.93
Posts	$                    25.44

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Machine setups	Number of setup	$ 27,200	400	$             68.00	Per setup
Special processing	Number of machine hour	$ 130,400	5000	$             26.08	Per machine hour
General factory	Number of Direct labor hour	$ 1,056,000	66000	$             16.00	Per Direct labor hour

.

Cost assigned to Rims
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setups	$           68.00	120.00	$ 8,160
Special processing	$           26.08	5,000.00	$ 130,400
General factory	$           16.00	5,000.00	$ 80,000
Total Overheads assigned			$ 218560.0
Production			22,000.00
Overhead cost per unit			$ 9.93

.

Cost assigned to Posts
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setups	$           68.00	280	$ 19,040
Special processing	$           26.08	0	$ 0
General factory	$           16.00	61000	$ 976,000
Total Overheads assigned			$ 995,040
Production			80,000.00
Overhead cost per unit			$               12.44

.

ABC Costing
	Rims	Posts
Direct material	$                    14.00	$                     10.00
Direct labor (labor rate x hours required per unit)	$                      9.00	$                        3.00
Overheads	$                      9.93	$                     12.44
Total Cost per unit	$                    32.93	$                     25.44