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Following a review of its operational processes, Hedman Company has identified the following overhead activities costs and activity drivers for the upcoming year: Activity Expected

Following a review of its operational processes, Hedman Company has identified the following overhead activities costs and activity drivers for the upcoming year:

Activity

Expected cost

Activity Driver

Estimated Activity Level

Setting up

$140,000

Number of setups

700 setups

Inspecting

$100,000

Inspection hours

10,000 hours

Polishing

$190,000

Machine hours

38,000 hours

Receiving

?

Number of parts

100,000 parts

The company produces several different couplings that it sells throughout North America. The following is information on two separate batches of the companys couplings:

Sleeve Couplings

Disc Couplings

Direct Materials

$1,900

$2,000

Direct Labour

$1,200

$1,200

Units Completed

200

100

Number of setups

2

2

Inspection hours

8

4

Machine hours

40

60

Parts used

40

80

The company's normal activity is 20,000 direct labour hours. Each batch uses 100 hours of direct labour.

Upon investigation, you discover that Receiving employs a worker, who spends 75% of her time on the receiving activity and 25% of her time on inspecting products. Her annual salary is $80,000. In addition, Receiving also uses a forklift, at a cost of $12,000 per year for fuel and maintenance. The forklift is used only in receiving.

Required: a. Compute the unit cost for Sleeve Couplings, using direct labour hours to assign overhead.

b. Compute the unit cost for Sleeve Couplings, using activity rates.

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