Question

mpany produces two types of stereo units: deluxe and regular. Activity data follow: Activity usage measures Product-costing data Deluxe Regular Total Units produced per year 5.000 50.000 35.000 Prime cost $39.000 $309.000 S408.000 Direct labor hours SO,000 45.000 90.000 Machine hours 100.000 5.000 10.000 10 120 Production runs 15 Number of moves 60 180 Activity cost data (overhead activities) Activity Cost S60,000 Setups terials handling 30,000 Power 50.000 40.000 Testing Total 180.000 1. Calculate the consumption ratios for each activity by filling in the table as below.' Overhead activity Regular Activity driver Deluxe Setups Material handling Power Testing 2. Based on the consumption ratios, Gee Company has grouped the activities into batchlevel and unit-level. Setups and materials handling are classified as batch-level activities while power and testing are arranged as unit-level activities. Calculate a rate for each pooled group of activities. (8 marks) 3. Using the pool rates, calculate unit product costs. (10 marks)

Answer 1

Total 10 Activity Driver Deluxe Regular No. of production Runs No. of Moves 120 Machine Hours 10000 90000 Direct Labor Hours 5000 45000 ratio calculation Deluxe Regular 15 0.666666667 10 / 15 0.333333333 5 / 15 180 0.666666667 120 / 180 0.333333333 60 / 180 100000 0.1 10000/100000 0.9 90000 / 100000 50000 0.1 5000 / 50000 0.9 45000 / 50000 60% Overhead Activity Setups Material Handling Power Testing Consumption Ratio Deluxe Regular Activity Driver 0.666666667 0.333333333 No. of production Runs 0.666666667 0.333333333 No. of Moves 0.9 Machine Hours 0.1 0.9 Direct Labor Hours 0.1

Batch Level Pool Set Ups 60000 Material Handling 30000 Total 90000 Runs 15 Pool rate 6000 per run Unit Level Pool Power 50000 Testing 40000 Total 90000 Machine Hours 1000001 Pool rate 0.91 per machine hour Unit product cost calculation Delux Regular Prime Cost 39000 369000 Overheads Cost Batch Level Cost 6000 * 10 run 6000 * 5 run 60000 30000 Unit Level Cost 0.9 * 10000 hours 0.9 * 90000 hours 9000 81000 Total Manufacturing Cost Total Units Unit Cost 108000 480000 5000 50000 21.6 9.6