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	$368,300		Number of purchase orders
Scheduling	205,300		Number of production orders
Materials handling	463,200		Number of moves
Product development	755,700		Number of engineering changes
Production	1,427,300		Machine hours

	Number of Purchase Orders	Number of Production Orders	Number of Moves	Number of Engineering Changes	Machine Hours	Number of Units
Disk drives	3,830	380	1,420	12	1,600	1,800
Tape drives	1,700	185	500	8	10,000	4,200
Wire drives	11,000	720	3,600	20	10,500	2,800

The activity-based cost for each disk drive unit is

a.$215.79

b.$330.69

c.$613.62

d.$22.28

Answer 1

Solution:

Computation of Activity rates
Activity cost pool	Overhead costs	Total Cost drivers	Activity Rate
Procurement	$3,68,300	16530	$22.28
Scheduling	$2,05,300	1285	$159.77
Materials Handling	$4,63,200	5520	$83.91
Product Development	$7,55,700	40	$18,892.50
Production	$14,27,300	$22,100	$64.58
Total	$32,19,800
Computation of Activity based cost for Each Disk drive unit
Activity	Activity Rate	Cost Driver used	Overhead Allocated
Procurement	$22.28	3830	$85,335
Scheduling	$159.77	380	$60,711
Materials Handling	$83.91	1420	$1,19,157
Product Development	$18,892.50	12	$2,26,710
Production	$64.58	1600	$1,03,334
Total Cost assigned			$5,95,247
Units of Disk drive			1800
Cost per unit of disk drive			$330.69

Hence option "b" is correct.