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 150,000 450,000 $46,800,000 Prime costs $10,800,000 Machine hours 150,000 750,000 $57,600,000 900,000 2,000 200 1,800 Engineering hours Receiving orders Inspection hours 300 900 1,200 800 1,600 2,400 Overhead costs: Machining Engineering $9,000,000 860,000 468,000 Receiving Inspecting products 480,000 Required:

Answer 1

Answer

1)

Activity Rates

Machining Rate $ 10 per Machine Hours

Engineering Rate $ 430 per Engineering Hours

Receiving Rate $ 390 Receiving Orders

Inspecting Products Rate $ 200 Inspection Hours

Workings:

	Total Overheads (a)	Total Activity (b)	Rate per Activity (a / b)
Machining	$ 9,000,000	900,000 Machine Hours	$ 10 per Machine Hours
Engineering	$ 860,000	2,000 Engineering Hours	$ 430 per Engineering Hours
Receiving	$ 468,000	1,200 Receiving Orders	$ 390 Receiving Orders
Inspecting Products	$ 480,000	2,400 Inspection Hours	$ 200 Inspection Hours

2)

Unit Cost

Basic = $ 84.42 per unit

Advance = $ 123.8781 per unit

Overhead Cost

Basic = $ 12.42 per unit

Advance = $ 19.8781 per unit

Workings:

Computation of Unit Cost Using Activity Rates

	Basic	Advance
Prime Cost	$ 72 ($10,800,000 / 150,000)	$ 104 ($46,800,000 / 450,000)
Overhead Cost
Machining	$ 10 (150,000 hr / 150,000 * $10)	$ 16.667 (750,000 hr / 450,000 * $10)
Engineering	$ 0.5733 (200 hr / 150,000 * $ 430)	$ 1.72 (1,800 hr / 450,000 * $ 430)
Receiving	$ 0.78 (300 hr / 150,000 * $ 390)	$ 0.78 (900 hr / 450,000 * $ 390)
Inspecting Products	$ 1.0667 (800 hr / 150,000 * $ 200)	$ 0.7111 (1,600 hr / 450,000 * $ 200)
Total Overhead Cost	$ 12.42	$ 19.8781
Unit Cost (Prime Cost+Total Overhead Cost)	$ 84.42	$ 123.8781

3)

Cost Assignment for the inspection Activity

Basic = Inspecting Products / Total Inspection Hours * Inspection Hour for Basic

Basic = $ 480,000 / 2400 Hrs * 800 Hrs = $ 160,000

Advance = Inspecting Products / Total Inspection Hours * Inspection Hour for Advance

Advance = $ 480,000 / 2,400 Hrs * 1,600 Hrs = $ 320,000