Question

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below.

	Activity Cost		Activity Base
Procurement	$371,200		Number of purchase orders
Scheduling	234,000		Number of production orders
Materials handling	486,400		Number of moves
Product development	744,600		Number of engineering changes
Production	1,479,200		Machine hours

	Number of Purchase Orders	Number of Production Orders	Number of Moves	Number of Engineering Changes	Machine Hours	Number of Units
Disk drives	4,020	260	1,440	12	1,500	2,300
Tape drives	2,200	245	700	8	8,600	4,000
Wire drives	11,500	780	3,500	20	10,300	2,800

The activity-based cost for each wire drive unit is

a.$20.95

b.$644.27

c.$255.61

d.$230.89

Answer 1

The correct answer is b. $ 644.27

Notes:

Number of Purchase Orders	Number of Production orders	Number of Moves	Number of Engineering Changes	Machine Hours
Disk drives	4020	260	1,440	12	1,500
Tape drives	2200	245	700	8	8,600
Wire drives	11500	780	3,500	20	10,300
Total Activity	17720	1285	5640	40	20400

	Activity Cost	Activity Base	Total Activity	Activity Rate ( Activity Cost / Total Activity)
Procurement	371200	Number of purchase orders	17720	20.94808126410840
Scheduling	2,34,000	Number of production orders	1285	182.10116731517500
Materials handling	4,86,400	Number of moves	5640	86.24113475177300
Product development	7,44,600	Number of engineering changes	40	18,615.00
Production	14,79,200	Machine hours	20400	72.50980392156860

Wire drives
	Activity Rate ( Activity Cost / Total Activity)	Activity	Cost ( Activity Rate * Activity)
Procurement	20.94808126	11500	240902.9345
Scheduling	182.1011673	780	142038.9105
Materials handling	86.24113475	3500	301843.9716
Product development	18615	20	372300
Production	72.50980392	10300	746850.9804
		Total Cost	1803936.797
		Units	2800
		Per Unit Cost ( Total Cost /Units)	644.2631418