Question

Activity Rates and Activity-Based Product Costing

Hammer Company produces a variety of electronic equipment. One of its plants produces two laser printers: the deluxe and the regular. At the beginning of the year, the following data were prepared for this plant:

	Deluxe	Regular
Quantity	100,000	800,000
Selling price	$900	$750
Unit prime cost	$529	$483

In addition, the following information was provided so that overhead costs could be assigned to each product:

Activity Name	Activity Driver	Deluxe	Regular	Activity Cost
Setups	Number of setups	300	200	$2,050,000
Machining	Machine hours	100,000	300,000	60,000,000
Engineering	Engineering hours	50,000	100,000	10,500,000
Packing	Packing orders	100,000	400,000	200,000

Calculate the per-unit product cost for each product. Round your answers to the nearest whole dollar.

Deluxe = _______ per unit

Regular = _______ per unit

Answer 1

Per-unit product cost

Deluxe - $727 per unit

Regular - $549 per unit

Workings:

1.Calculate the overhead rates for each activity

	Deluxe	Regular	Total	Activity Cost	Overhead rate
Setups	300	200	500	$2050000	$4100
Machining	100000	300000	400000	$60000000	$150
Engineering	50000	100000	150000	$10500000	$70
Packing	100000	400000	500000	$200000	$0.4

2.Per-unit Product Cost for each project

	Delux	Regular
Units	100000	800000
Prime cost per unit	$529	$483
Prime Cost	$52900000	$386400000
Overhead costs:
Setups	$1230000	$820000
Machining	$15000000	$45000000
Engineering	$3500000	$7000000
Packing	$40000	$160000
Total Cost	$72670000	$439380000
Units	100000 units	800000 units
Cost per unit	$726.7	$549.225

Per-unit product cost

Deluxe - $727 per unit

Regular - $549 per unit

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