Question

Analyze Gourmet Master, Inc. Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is as follows: 0.30 Activity-Base Usage Activity Rate Activity (hrs. per unit) X per Hour Activity Cost Fabrication 0.75 $24.00 $18.00 Assembly 1.50 20.00 30.00 Inspection 25.00 7.50 Moving 0.25 12.00 3.00 Total activity cost per unit $58.50 These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during assembly, thus reducing assembly time to 1.10 hours per unit. a. Determine the revised activity-based cost per unit under the new fabrication plan. Round your answer to the nearest cent. Activity cost per unit $ b. Does this plan reduce the activity cost per unit of the oven?

Answer 1

The Revised activity based cost per unit under the new fabrication plan is as follows:- Given that time in fabrication will increase to Ihrs. Given that reducing assembly time to percinis 1.10 hours per whit Activity Activity-Base Usage Activity Rate Chrs. per unit) Xper Hour(s) Fabrication [1.00 $24 Assembly 11.10 $20 Inspection 0.30 $25 moving 0.25 $ 12 Activity cost $24 8 22 $ 7.5 $56.50 @ The revised activity based cost per canit under the new fabbrication plan: Activity cost per unit & 56.50 yes. This plan reduce the activity cost per unit of the oven. Before the plan the activity base cast per unit was $58.5o. but with this new plon activity cost per unit became $ 56.50. so the loft Activity cast . per anit reduced by $2.00 per unit.