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		150,000		450,000		------
Prime costs		$10,500,000		$52,200,000		$62,700,000
Machine hours		150,000		750,000		900,000
Engineering hours		400		3,600		4,000
Receiving orders		200		600		800
Inspection hours		800		1,600		2,400
Overhead costs:
Machining		$13,500,000
Engineering		1,920,000
Receiving		216,000
Inspecting products		480,000

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	$

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1. Machining rate: Overhead costs Total machine hours. The other three activity rates are calculated the same way using each activity's Overhead costs and totals.

2. Use the calculations from Requirement 1 to calculate the unit costs and also calculate OH cost per unit. Example of Total cost: Activity rate (above) Basic OH costs and also Activity rate Advanced OH costs. Example of OH costs per units: Total manufacturing costs Units of production = Unit Cost (for Basic and Advanced).

3. Calculate unit costs using consumption ratios. Compare to activity rate unit costs. To assign inspection cost use the inspection hrs. for basic/advanced total inspection hrs. for both and give a conclusion.