4-2: Limitations of Plantwide and Departmental Rates

Cornerstone Exercise 4.5 (Algorithmic)

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.

BasicAdvancedTotalUnits produced130,000390,000------Prime costs$10,400,000$40,560,000$50,960,000Machine hours130,000650,000780,000Engineering hours2001,8002,000Receiving orders200600800Inspection hours7001,4002,100Overhead costs:Machining$6,240,000Engineering1,060,000Receiving320,000Inspecting products420,000

Required:

1.Calculate the four activity rates.

Machining rate$per machine hourEngineering rate$per hourReceiving rate$per orderInspecting rate$per hour

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

Unit costBasic$per unitAdvanced$per unit

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

Overhead CostBasic$per unitAdvanced$per unit

3.What if consumption ratios instead of activity rates were used to assigned costs? Show the cost assignment for the inspection activity.

Cost assignmentBasic$Advanced$