69 A B 1 Problem 3 Activity based Costing (29 points: 5 + 21+3) D 3 Right Manufacturing Company is manufactures three models of electric panels (Base, Mid-range and Top-notch) in 4 a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. 5 The controller identified the amount of factory overhead required by the critical manufacturing activities as follows: 6 7 Activities 8 Purchasing 9 Setup 10 Machining 11 Engineering 12 Inspection 13 14 Activity Cost Pool $26,000 Activity Base Material order (MO) Machine Hours (MH) $135,000 Setups $253,500 $150,500 Engineering Hours (EH) $74,800 $639,800 Inspection Hours (IH) 15 The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: G H 16 17 Number of Material Number of Setups Number of Machine Number of Engineering Number of Inspection Number of Units 18 Orders (MO) hours (MH) hours (EH) hours (IH) Produced 19 Base 280 200 2,250 100 300 3,000 20 Mid-range 200 150 1,125 250 200 1,500 21 Top-notch 22 Total 170 100 525 350 180 700 650 450 3,900 700 680 23 24 Each product requires 45 minutes per unit of machine time. 25 26 Required: 27 A. Determine the activity rate for each activity. Round all per unit amounts to the nearest cent. 28 Formula: Activity rate = Activity cost pool + Number of activity base 29 30 Activities 31 Purchasing 32 Setup 33 Machining 34 Engineering 35 Inspection 36 Activity Cost Pool Number of Activity Base used No. of MO No. of Setups No. of MH No. of EH No. of IH Activity cost driver rate 37 B. Determine the total and per-unit activity cost for all three products. 38 Round all total costs to whole number and round all per unit amounts to the nearest cent. 39 Formula: Activity-Base Usage x Activity rate from Req. (1) = Activity cost; 40 Sum all activity costs per product to determine the total activity costs and 41 Divide the total activity overhead by the number of units produced to compute the activity costs per unit for each product. 42 43 Products 44 Base Purchasing Setup Machining Engineering Inspection Total actvity costs Unit activity cost 45 Mid-range 46 Top-notch 47 Total 48 49 C. Why aren't the unit activity costs equal across all three products since they require the same machine time per unit? 50 51 Answer: 52 53 54 ABC2 Ready Accessibility: Investigate