Question

Exercise 17-3 Assigning costs using ABC LO P3 Xie Company identified the following activities, costs, and activity drivers for 2017. The company manufactures two types of go-karts: Deluxe and Basic. Activity Handling materials Inspecting product Processing purchase orders Paying suppliers Insuring the factory Designing packaging Expected Costs $625,000 900,000 105,000 175,000 300,000 75,000 Expected Activity 100,000 parts 1,500 batches 700 orders 500 invoices 40,000 square feet 2 models Assume that the following information is available for the company's two products for the first quarter of 2017. Production volume Parts required Batches made Purchase orders Invoices Space occupied Models Deluxe Model 10,000 units 20,000 parts 250 batches 50 orders 50 invoices 10,000 sq. ft. 1 model Basic Model 30,000 units 30,000 parts 100 batches 20 orders 10 invoices 7,000 sq. ft 1 model Required: Compute activity rates for each activity and assign overhead costs to each product model using activity-based costing (ABC). What is the overhead cost per unit of each model? (Round activity rate answers to 2 decimal places.) Activity Rate Cost driver quantity incurred OH Allocated Deluxe Activity Handling materials Inspecting product Processing orders Paying suppliers Insuring factory Designing packaging Activity Rate Cost driver quantity incurred OH Allocated Basic Activity Handling materials Inspecting product Processing orders Paying suppliers Insuring factory Designing packaging

Answer 1

Activity Cost Pool Cost Driver Cost Driver Rate Handling material $625,000 100000 parts $6 per part Inspecting product $900,000 1500 batches $600 per batche Processing purchase orders $105,000 700 orders $150 per order Paying suppliers $175,000 500 invoices $350 per invoice Insuring the factory $300,000 40000 sq. feet $8 per sq. feet Designing Packaging $75,000 2 models $37,500 per model

DELUXE MODEL Activity Handling material Inspecting product Processing purchase orders Paying suppliers Insuring the factory Designing Packaging Activity Rate $6.25 per part $600.00 per batch $150.00 per order $350.00 per invoice $7.50 per sq. feet $37,500.00 per model Cost Driver Quantity Incurred 20000 parts 250 batches 50 orders 50 invoices 10000 sq. feet 1 models OH Allocated $125,000.00 $150,000.00 $7,500.00 $17,500.00 $75,000.00 $37,500.00 a b c=a/b Total Overhead Production Volume Cost Per Unit $412,500.00 10000 units $41.25 per unit

BASIC MODEL Activity Handling material Inspecting product Processing purchase orders Paying suppliers Insuring the factory Designing Packaging Activity Rate $6.25 per part $600.00 per batch $150.00 per order $350.00 per invoice $7.50 per sq. feet $37,500.00 per model Cost Driver Quantity Incurred 30000 parts 100 batches 20 orders 10 invoices 7000 sq. feet 1 models OH Allocated $187,500.00 $60,000.00 $3,000.00 $3,500.00 $52,500.00 $37,500.00 a b c=a/b Total Overhead Production Volume Cost Per Unit $344,000.00 30000 units $11.47 per unit

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