Activity-Based Product Costing

Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

Activity		Budgeted Activity Cost
Production			$462,400
Setup			129,300
Inspection			87,000
Shipping			121,500
Customer service			84,700
	Total		$884,900

The activity bases identified for each activity are as follows:

Activity	Activity Base
Production	Machine hours
Setup	Number of setups
Inspection	Number of inspections
Shipping	Number of customer orders
Customer service	Number of customer service requests

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

			Machine Hours		Number of Setups		Number of Inspections		Number of Customer Orders		Customer Service Requests		Units
White sugar			2,990		80		200		900		70		7,475
Brown sugar			1,900		110		300		2,480		440		4,750
Powdered sugar			1,910		110		500		1,120		190		4,775
	Total		6,800		300		1,000		4,500		700		17,000

Each product requires 0.9 machine hour per unit.

Required:

If required, round all per unit amounts to the nearest cent.

1. Determine the activity rate for each activity.

Production	$fill in the blank 1 per machine hour
Setup	$fill in the blank 2 per setup
Inspection	$fill in the blank 3 per move
Shipping	$fill in the blank 4 per cust. ord.
Customer service	$fill in the blank 5 per customer service request

2. Determine the total and per-unit activity cost for all three products.

	Total Activity Cost	Activity Cost Per Unit
White sugar	$fill in the blank 6	$fill in the blank 7
Brown sugar	fill in the blank 8	fill in the blank 9
Powdered sugar	fill in the blank 10	fill in the blank 11

3. Why arent the activity unit costs equal across all three products since they require the same machine time per unit?

The unit costs are different because the products consume many activities in ratios different from the

volumesales mix

.