Question

Activity-Based Product Costing Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below. Basic Advanced Total Units produced 150,000 Prime costs 450,000 $46,800,000 750,000 $10,800,000 150,000 $57,600,000 Machine hours 900,000 2,000 200 1,800 Engineering hours Receiving orders 300 1,200 Inspection hours 800 1,600 2.400 Overhead costs: $9,000,000 860,000 Machining Engineering Receiving Inspecting products 468,000 480,000 Required:

Answer 1

(1)

Machining	$                 10	per machine hour
Engineering	$              430	per hour
Receiving	$              390	per order
Inspecting Products	$              200	per hour

Explanations :-

	(A) Overhead cost	(B) Activities	Overhead Rate (A÷B)
Machining	$9,000,000	900000	$                           10
Engineering	$860,000	2000	$                         430
Receiving	$468,000	1200	$                         390
Inspecting Products	$480,000	2400	$                         200

(2)

	Unit cost
Basic	$           84.42	per unit
Advanced	$        123.88	per unit

	Overhead cost
Basic	$           12.42	per unit
Advanced	$           19.88	per unit

Explanations :-

	Basic	Advanced
Prime cost	$10,800,000	$46,800,000
÷ Units produced	150000	450000
Prime cost per unit	$72	$104
Add: Overhead cost per unit	$12.42	$19.88
Unit cost	$              84.42	$        123.88

	(A) Overhead Rate	(B) Basic Activity	Cost assigned to Basic (AXB)	(C) Advanced Activity	Cost assigned to Basic (AXC)
Machining	$10	150000	$1,500,000	750000	$7,500,000
Engineering	$430	200	$86,000	1800	$774,000
Receiving	$390	300	$117,000	900	$351,000
Inspecting Products	$200	800	$160,000	1600	$320,000
			$1,863,000		$8,945,000
÷ Units produced			150000		450000
Overhead cost per unit			$                     12.42		$                19.88

(3)

	Cost assignment
Basic	$        160,000
Advanced	$        320,000

Basic = $480000 * 800/2400 = $160000

Advanced = $480000 * 1600/2400 = $320000