B) Activity-Based Costing

Suppose that overhead costs are actually caused by the five activities listed below with their resulting total costs, rather than by direct labour-hours.

Estimated

Activity Overhead Cost

Machine setups............................... $255,000

Quality inspections......................... 160,000

Production orders........................... 81,000

Machine-hours worked.................. 314,000

Material receipts.............................. 90,000

Total................................................ $900,000

Expected Activity

Activity Total Product A Product B

Machine setups..................................... 5,000 3,000 2,000

Quality inspections............................... 8,000 5,000 3,000

Production orders................................. 600 200 400

Machine-hours worked........................ 40,000 12,000 28,000

Material receipts.................................... 750 150 600

Required:

1. Calculate the activity rates for Sarver using the ABC method.

1. Determine the total cost of Product A and Product B using Activity-Based Costing.