Magnolia Company has identified seven activities as part of its manufacturing process and chosen corresponding activity...

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Magnolia Company has identified seven activities as part of its manufacturing process and chosen corresponding activity drive

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Activity	Cost	Activity Driver	Prod. 1	Prod. 2		Activity Rate		Activity Cost: Prod. 1	Activity Cost: Prod. 2
Design	$65,250	Design Time	880	1,370	hours	$29	/hour	$25,520	$39,730
Preparation	$56,880	Labour Hours	3,130	3,190	hours	$9	/hour	$28,170	$28,710
Machining	$137,700	Machine Hours	1,550	3,550	hours	$27	/hour	$41,850	$95,850
Finishing	$23,310	Batches	218	300	batches	$45	/batch	$9,810	$13,500
Inspection	$17,200	Units	660	1,060	units	$10	/unit	$6,600	$10,600
Packaging	$29,682	Orders	40	57	orders	$306	/order	$12,240	$17,442
Shipping	$12,852	Packages	70	38	packages	$119	/package	$8,330	$4,522

1. Design:

Activity Rate = Total Cost / Total Driver Usage = $65,250 / (880 Hrs + 1,370 Hrs) = $65,250 / 2,250 hrs = $29 Per Hour

Activity Cost = Driver Usage Hours * Activity Rate Per Hour

Product 1: 880 Hours * $29 Per Hour = $25,520

Product 2: 1,370 Hours * $29 Per Hour = $39,730

2. Preparation:

Activity Cost for Product 2 = Total Activity Cost – Activity Cost for Product 1 = $56,880 - $28,170 = $28,710

Activity Rate = Activity Cost for Product 1 / Product 1 Driver Usage = $28,170 / 3,130 Hrs = $9 Per Hour

Product 2 Driver Usage = Activity Cost for Product 2 / Activity Rate Per Hour = $28,710 / $9 Per Hour = 3,190 Hrs

3. Machining:

Activity Cost for Product 2 = Total Activity Cost – Activity Cost for Product 1 = $137,700 - $41,850 = $95,850

Product 1 Driver Usage= Activity Cost for Product 1 / Activity Rate Per Hour = $41,850 / $27 Per Hour = 1,550 Hours

Product 2 Driver Usage= Activity Cost for Product 2 / Activity Rate Per Hour = $95,850 / $27 Per Hour = 3,550 Hours

4. Finishing:

Activity Cost for Product 1 = Product 1 Driver Usage * Activity Rate = 218 Batches * $45 Per Batch = $9,810

Activity Cost for Product 2 = Product 2 Driver Usage * Activity Rate = 300 Batches * $45 Per Batch = $13,500

Total Activity Cost = Activity Cost for Product 1 + Activity Cost for Product 2 = $9,810 + $13,500 = $23,310

5. Inspection:

Total Activity Cost = Activity Cost for Product 1 + Activity Cost for Product 2 = $6,600 + $10,600 = $17,200

Product 1 Driver Usage = Activity Cost for Product 1 / Activity Rate = $6,600 / $10 Per Unit = 660 Units

Product 2 Driver Usage = Activity Cost for Product 2 / Activity Rate = $10,600 / $10 Per Unit = 1,060 Units

6. Packaging:

Product 1 Driver Uasge = Activity Cost for Product 1 / Activity Rate = $12,240 / $306 Per Order = 40 Orders

Activity Cost for Product 2 = Product 2 Driver Usage * Activity Rate = 57 Orders * $306 Per Order = $17,442

Total Activity Cost = Activity Cost for Product 1 + Activity Cost for Product 2 = $12,240 + $17,442 = $29,682

7. Shipping:

Activity Cost for Product 1 = Total Activity Cost – Activity Cost for Product 2 = $12,852 - $4,522 = $8,330

Activity Rate = Activity Cost for Product 1 / Product 1 Driver Usage = $8,330 / 70 Packages = $119 Per Package

Product 2 Driver Usage = Activity Cost for Product 2 / Activity Rate = $4,522 / $119 Per Package = 38 Packages

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