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	$500,000
Setup	144,000
Inspection	44,000
Shipping	115,000
Customer Service	84,000
Total	$887,000

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:

Line Item Description	Machine Hours	Number of Setups	Number of Inspections	Number of Customer Orders	Customer Service Requests	Units
White sugar	5,000	85	220	1,150	60	10,000
Brown sugar	2,500	170	330	2,600	350	5,000
Powdered sugar	2,500	195	550	2,000	190	5,000
Total	10,000	450	1,100	5,750	600	20,000

Each product requires 0.5 machine hour per unit.

Required:

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

1. Determine the activity rate for each activity.

Activity	Amount
Production	$fill in the blank 1 per machine hour
Setup	$fill in the blank 2 per setup
Inspection	$fill in the blank 3 per inspection hour
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.

Line Item Description	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 fill in the blank 1 of 1

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