Arial A 1 A B Problem 4: Activity-Based Costing 2 3 4 5 6 7 8 9 Activities Activity Cost Poo Activity Base 10 Machining $350,000 11 Setup $90,000 Machine Hours (MH) Number of Setups 12 Materials handling $15,000 Number of Material order (MO) 13 Engineering $140,000 Number of Eng.. Hours (EH) 14 Inspection 15 $90,000 $685,000 Number of Insp. Hours (IH) 16 17 The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: G H 18 19 Number of MH Number of Setups Number of MO Number of EH Number of IH 20 Number of Units Produced 21 Electra 22 Protos 2,500 200 250 280 ET 250 2,500 1,500 180 150 170 150 1,500 23 Nutra 1000 220 100 250 200 1000 24 Total 5,000 600 500 700 600 25 26 Each product requires 60 minutes per unit of machine time. 27 28 Required: 29 1. Determine the activity rate for each activity. Round all per unit amounts to the nearest cent. 30 Formula: Activity rate = Activity cost pool Number of activity base 31 32 Activities Activity Cost Po 33 Machining 34 Setup 35 Materials handling Number of Activity Base Activity rate Machine Hours Number of Setups 36 Engineering 37 Inspection 38 Number of MO Number of EH Number of IH 39 2. Determine the total and per-unit activity cost for all three products. 40 41 Round all total costs to whole number and round all per unit amounts to the nearest cent. Formula: Activity-Base Usage x Activity rate from Req. (1) Activity cost = 42 Sum all activity costs per product to determine the total activity costs and 43 Divide the total activity overhead by budgeted units to compute the activity costs per unit for each product 44 45 Products Production Setup Materials handling Inspection Product engineeri Total costs Unit cost 46 Electra 47 Protos 48 Nutra 49 Total 50 51 3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit? 52 53 54 55 ABC2 M O