Question

Product costs using activity rates Setup 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 $25 per machine hour Assembly $31 per direct labor hour $94 per setup Inspecting $18 per inspection Production scheduling $17 per production order Purchasing $8 per purchase order The activity base usage quantities and units produced for each product were as follows: Activity Base Elliptical Machines Treadmill Machine hours 800 550 Direct labor hours 186 228 Setups 37 37 Inspections 38 4 Production orders 30 Purchase orders 346 115 Units produced 500 350 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the requred analysis, and input your answers in the question below

Answer 1

Answer 1			Elliptical Machines	Treadmill
		Activity Rate	Cost driver quantity allocated	OH allocated	Cost driver quantity allocated	OH allocated
	Fabrication	$25.00	800	$20,000	550	$13,750
	Assembly	$31.00	186	$5,766	228	$7,068
	Setup	$94.00	37	$3,478	37	$3,478
	Inspecting	$18.00	38	$684	48	$864
	Production Scheduling	$17.00	30	$510	25	$425
	Purhcasing	$8.00	346	$2,768	115	$920
	Total Activity Cost			$33,206		$26,505
	Divided by:No. of units produced			500		350
	Activity Cost per unit			$                                         66.41		$                                     75.73
Answer 2	Computation of Activity Rate
	Activities	Costs	Activity Base	Cost driver total	Overhead rate(Costs/Cost driver total)
	Casting	$432,000	Machine Hours	18,000	$24.00	per machine hrs
	Assembly	$114,000	Direct labor hours	6,000	$19.00	per labor hrs
	Inspecting	$36,000	No. of Inspections	1,000	$36.00	per inspection
	Setup	$46,000	No. of Setups	500	$92.00	per setup
	Materials Handling	$20,700	No. of loads	900	$23.00	per load
			Entry	Dining
		ABC rate	Activity Based usage	Activity Based usage*ABC rate	Activity Based usage	Activity Based usage*ABC rate
	Casting	$                                  24.00	5680	$                                     136,320	12320	$                                 295,680
	Assembly	$                                  19.00	3600	$                                       68,400	2400	$                                   45,600
	Inspecting	$                                  36.00	570	$                                       20,520	430	$                                   15,480
	Setup	$                                  92.00	300	$                                       27,600	200	$                                   18,400
	Materials Handling	$                                  23.00	200	$                                         4,600	700	$                                   16,100
	Total Activity Cost			$                                     257,440		$                                 391,260
	No. of units			2600		4900
	Activity Cost per unit			$                                         99.02		$                                     79.85
Answer 3			Abel Putin	Cheryl Unit
		Activity Rate	Cost driver quantity allocated	OH allocated	Cost driver quantity allocated	OH allocated
	Room and Meals	$270.00	9	$2,430	4	$1,080
	Radiology	$220.00	3	$660	2	$440
	Pharmacy	$30.00	6	$180	4	$120
	Chemistry lab	$90.00	5	$450	3	$270
	Operating Room	$740.00	7	$5,180	3	$2,220
	Total Activity Cost			$8,900		$4,130