Question

1. Activity Cost Pools, Activity Rates, and Product Costs using Activity-Based Costing

   Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows:

   Activity	Activity Pool Cost			Activity Base
   Procurement		$145,410		Number of purchase orders
   Scheduling		10,560		Number of production orders
   Materials handling		28,400		Number of moves
   Product development		33,360		Number of engineering changes
   Total cost		$217,730

   The estimated activity-base usage and unit information for two product lines was determined as follows:

   		Number of Purchase Orders			Number of Production Orders			Number of Moves			Number of Engineering Change Orders			Units
   Ovens			540			290			420			170			1,420
   Refrigerators			570			150			290			70			1,080
   	Totals		1,110			440			710			240			2,500

   a. Determine the activity rate for each activity cost pool. If required, round your answers to the nearest dollar.

   Procurement (per purchase order)	$
   Scheduling (per production order)	$
   Materials handling (per move)	$
   Product development (per engineering change order)	$

   b. Determine the activity-based cost per unit of each product. Round your answers to the nearest cent.

   Ovens	$ per unit
   Refrigerators	$ per unit

Answer 1

A	Activity	Activity Pool Cost	Allocation Base	Total Allocation Base	Activity Rate
	Procurement	145,410	Purchase Orders	1110	131.00
	Scheduling	10,560	Production Orders	440	24.00
	Material Handling	28,400	Moves	710	40.00
	Product Development	33,360	Engineering Changes	240	139.00
		217,730
B	Allocation Base	Oven	Refrigerators	Total
	Purchase Orders	540	570	1,110
	Production Orders	290	150	440
	Moves	420	290	710
	Engineering Changes	170	70	240
	Activity	Oven	Refrigerators
	Procurement	70,740	74,670	Activity rate* Activity usage
	Scheduling	6,960	3,600
	Material Handling	16,800	11,600
	Product Development	23,630	9,730
		118,130	99,600
	Units	1,420	1,080
	PU Cost	83.2	92.2