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.

BasicAdvancedTotalUnits produced80,000240,000------Prime costs$6,720,000$27,360,000$34,080,000Machine hours80,000400,000480,000Engineering hours5004,5005,000Receiving orders200600800Inspection hours8001,6002,400Overhead costs:Machining$7,200,000Engineering2,250,000Receiving192,000Inspecting products336,000

Required:

1. Calculate the four activity rates.

Machining rate$ per machine hourEngineering rate$ per hourReceiving rate$ per orderInspecting rate$ per hour

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

Unit costBasic$ per unitAdvanced$ per unit

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

Overhead CostBasic$ per unitAdvanced$ 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 assignmentBasic$Advanced$