Cornerstone Exercise 4.5 (Algorithmic)

Activity-Based Product Costing

Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below.

		Basic		Advanced		Total
Units produced		130,000		390,000		------
Prime costs		$9,360,000		$39,780,000		$49,140,000
Machine hours		130,000		650,000		780,000
Engineering hours		400		3,600		4,000
Receiving orders		400		1,200		1,600
Inspection hours		900		1,800		2,700
Overhead costs:
Machining		$7,800,000
Engineering		1,680,000
Receiving		512,000
Inspecting products		351,000

Required:

1. Calculate the four activity rates.

Machining rate	$ per machine hour
Engineering rate	$ per hour
Receiving rate	$ per order
Inspecting rate	$ per hour

2. Calculate the unit costs using activity rates. Round your answers to the nearest cent.

	Unit cost
Basic	$ per unit
Advanced	$ per unit

Calculate the overhead cost per unit. Round your answers to the nearest cent.

	Overhead Cost
Basic	$ per unit
Advanced	$ per unit

3. What if consumption ratios instead of activity rates were used to assigned costs? Show the cost assignment for the inspection activity.

	Cost assignment
Basic	$
Advanced	$