Chapter 18: ABC In-class Activities ABC Problem 1: Meryl Manufacturing Company is a diversified manufacturer that manufactures three products (Sine, Cos and Tan) 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: Activities Production Setup Materials handling Inspection Product engineering Activity Cost Pool Activity Base $313,500 Machine Hours 79,800 Number of Setups 14,800 Number of Parts 80,500 Number of Inspection Hours 142,600 Number of Engineering Hours $631,200 The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Number of Setups Machine Hours 1,550 1,050 780 Number of Number of Inspection Hours Engineering Hours 350 130 Sine 80 Number of Parts 75 95 200 370 Number of Units Produced 2,000 1,500 900 Cos 250 180 170 320 Tan 400 150 Total 3,380 570 1,000 460 Each product requires 45 minutes per unit of machine time. Required: 1. Determine the activity rate for each activity. If required, round all per unit amounts to the nearest cent. Formula: Activity rate = Activity cost pool - Number of activity base Activity Cost Pool Activity rate Activities Production Setup Materials handling Inspection Product engineering Number of Activity Base Machine Hours Number of Setups Number of Parts Number of Inspection Hours Number of Engineering Hours 1 2. Determine the total and per-unit activity cost for all three products. If required, 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; Sum all activity costs per product to determine the total activity costs and Divide the total activity overhead by budgeted units to compute the activity costs per unit for each product. Products Production Setup Materials handling Inspection Product engineering Total costs Unit cost Sine Cos Tan Total 3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit