Question
Freedom Company produces a variety of bicycles. One of its plants produces two bicycles: a Racing model and a Mountain model. At the beginning of
Freedom Company produces a variety of bicycles. One of its plants produces two bicycles: a Racing model and a Mountain model. At the beginning of the year, the following estimates for the year, were prepared for this plant Racing Mountain Quantity 250,000 125,000 Selling price $1,200 $1,000 Unit prime cost $ 400 $ 500 In addition, the following information was provided so that overhead costs could be assigned to each product: Activity Name Activity Driver Activity Cost Racing Mountain Machining Machine hours $20,000,000 250,000 250,000 Engineering Engineering hours $ 8,000,000 75,000 50,000 Packing Packing orders $ 3,500,000 50,000 125,000 Step 1 a) Calculate the activity rate for machining. b) Calculate the activity rate for engineering. c) Calculate the activity rate for packing. Step 2 Use activity-based costing to calculate product costs. d) Calculate the per unit product cost for a Racing bike. e) Calculate the per unit product cost for a Mountain bike.
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