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		90,000		270,000		—
Prime costs		$6,480,000		$30,240,000		$36,720,000
Machine hours		90,000		450,000		540,000
Engineering hours		400		3,600		4,000
Receiving orders		500		1,500		2,000
Inspection hours		900		1,800		2,700
Overhead costs:
Machining		$5,940,000
Engineering		2,400,000
Receiving		400,000
Inspecting products		513,000

Required:

1. Calculate the four activity rates.

Machining rate	$___ per machine hour
Engineering rate	$ ___per hour
Receiving rate	$ ___per order
Inspecting rate	$__ per hour

2. Calculate the unit costs using activity rates. Round your answers to the nearest cent.

	Unit cost
Basic	$ ___per unit
Advanced	$___ per unit

Calculate the overhead cost per unit. Round your answers to the nearest cent.

	Overhead Cost
Basic	$ ____per unit
Advanced	$____ per unit

3. If consumption ratios instead of activity rates were used to assign costs instead of activity rates, show the cost assignment for the inspection activity.

	Cost assignment
Basic	$
Advanced	$

Answer 1

1)
		Total Overheads	Total Activity		Rate Per Activity
	Machining	59400000	$                           5,40,000	Machine Hours	$                       110	Per Machine Hour
	Engineering	24,00,000	$                                 4,000	Machine hours	$                       600	Per hour
	Receiving	4,00,000	$                                 2,000	Receiving orders	$                       200	Per Oredr
	Inspecting products	5,13,000	$                                 2,700	Inspection hours	$                       190	Per Hour
2)	Calculation of the unit costs using activity rates.
		Basic	Advance
	Prime Cost	$                              72.00	$                              112.00
	Overhead Cost
	Machining	$                            110.00	$                              183.33
		(90000/90000*$110)	(450000/270000*110)
	Engineering	2.67	8
		(400/90000*600)	(3600/270000*$600)
	Receiving	$                                1.11	$                                   1.11
		(500/90000*200)	(1500/270000*200)
	Inspecting products	$                                1.90	$                                   1.27
		(900/90000*190)	(1800/270000*190)
	total overhead cost	$                            115.68	$                              193.71
	Unit Cost	$                            187.68	$                              305.71
	(Prime Cost + Overhead Cost)
	Overhead Cost Per unit	$                            115.68	$                              193.71
3)	cost assignment for the inspection activity
	Basic = $513000/2700*900	$                        1,71,000
	Advance = $513000/27000*1800	$                        3,42,000