Question

Activity-Based Product Costing

Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below.

		Basic		Advanced		Total
Units produced		140,000		420,000		------
Prime costs		$9,800,000		$44,520,000		$54,320,000
Machine hours		140,000		700,000		840,000
Engineering hours		400		3,600		4,000
Receiving orders		400		1,200		1,600
Inspection hours		600		1,200		1,800
Overhead costs:
Machining		$10,920,000
Engineering		2,320,000
Receiving		560,000
Inspecting products		270,000

Required:

1. Calculate the four activity rates.

Machining rate	$ per machine hour
Engineering rate	$ per hour
Receiving rate	$ per order
Inspecting rate	$ per hour

2. Calculate the unit costs using activity rates. Round your answers to the nearest cent.

	Unit cost
Basic	$ per unit
Advanced	$ per unit

Calculate the overhead cost per unit. Round your answers to the nearest cent.

	Overhead Cost
Basic	$ per unit
Advanced	$ per unit

3. What if consumption ratios instead of activity rates were used to assigned costs? Show the cost assignment for the inspection activity.

	Cost assignment
Basic	$
Advanced	$

Answer 1

Answer is given below

1 Calculation of Activity rates Machine rate Engineering rate Receiving rate Inspecting rate $13 Per machine hour $580 Per hour $350 Per order $150 per hour working notes: Activity Activity rate Machining Engineering Receiving Inspecting products Total budgeted indirect costs Total Overheads $10,920,000 $2,320,000 $560,000 $270,000 $14,070,000 Total Activities 840,000 4,000 1,600 1,800 $13 Per machine hour $580 Per hour $350 Per order $150 per hour Cost Assigned Allocation of Overheads as per ABC method Basic Activity- Expected use Based of cost Overhead drivers rates Machining 140,000 $13.00 Engineering 400 $580.00 Receiving 400 $350.00 Inspecting products 6000 $150.00 Total Allocation of Overheads | Advanced Expected Activity- use Based Cost of cost Overhead Assigned drivers rates 700,000 $13.00 $9,100,000 3,600 $580.00 $2,088,000 1,200 $350.00 $420,000 1,200 $150.00 $180,000 $11,788,000 $1,820,000 $232,000 $140,000 $90,000 $2,282,000 2 Unit cost Basic Advanced $86.30 $134.07 per unit per unit Basic | Advanced $9,800,000 $44,520,000 Product cost per unit Prime cost Overhead allocated Machining Engineering Receiving Inspecting products Total Manufacturing cost Units Unit Cost $1,820,000 $9,100,000 $232,000 $2,088,000 $140,000 $420,000 $90,000 $180,000 $12,082,000 $56,308,000 140,000 420,000 $86.30 $134.07 Overhead cost per unit Basic Advanced $16.30 $28.07 per unit Iper unit Machining Engineering Receiving Inspecting products Total Overheads Units Unit Cost Basic Advanced $1,820,000 $9,100,000 $232,000 $2,088,000 $140,000 $420,000 $90,000 $180,000 $2,282,000 $11,788,000 140,000 420,000 $16.30 $28.07 3 Cost assignment-Inspection Activities Cost assignment $90,000 $180,000 Basic Advanced Advanced 1,200 Consumption of inspection hours Ratio Allocation of inspection cost Basic 600 0.33 $90,000 0.67 $180,000