Question

Wu Manufacturing produces two keyboards, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the keyboards.

Activity measures for the two kinds of keyboards follow:

 

Required

a. Compute the cost per unit of laptop and desktop keyboards, assuming that Wu made 500 units of each type of keyboard. Round your computation to two decimal points.

b. Explain why laptop keyboards cost more to make even though they have less material cost and are smaller than desktop keyboards.

Answer 1

1

Material Reciving and handling cost pool	Allocation rate	x	Cost of material	Allocation per cost object
Laptop	2%	x	3000	60
Desk top	2%		2400	48
Total				108

2

Production set up cost pool	Allocation rate	x	Numbet of set up	Allocation per cost object
Laptop	50	x	30	1500
Desk top	50		12	600
Total				2100

3

Assembly cost pool	Allocation rate	x	Numbet of parts	Allocation per cost object
Laptop	2.5	x	42	105
Desk top	2.5		24	60
Total				165

4

Quality inspection cost pool	Allocation rate	x	Inspection time	Allocation per cost object
Laptop	0.75	x	3600 min	2700
Desk top	0.75		2500 min	1875
Total				4575

5

Packing and shipping cost allocated	Allocation rate	x	Numbet of parts	Allocation per cost object
Laptop	10	x	65	650
Desk top	10		20	200
Total				850

Now we will calculate cost per unit for Laptop and Desktop as under

	Laptop	Desktop
Material	3000	2400
Labir	630	575
Material Reciving and handling cost pool allocated	60	48
Production set up cost pool allocated	1500	600
Assembly cost pool allocated	105	60
Quality inspection cost pool allocated	2700	1875
Packing and shipping cost allocated	650	200
Total cost	8645	5758
Unit produced	500	500
Total cost Per unit	17.29	11.516

(b)

Here we can see that laptop cost is more then Desk top cost is due to higher weight of allocation base(cost driver ) is more in laptop then Desktop.

For all the five activity weight of allocation base(cost driver ) is higher in laptop so share of overhead cost is more in laptop

Material cost is also higher in laptop

labor cost is also higher in laptop

All this factor together increases the cost of laptop then desktop