Question
Performance Products Corporation makes two products, Titanium Rims and Posts. Data regarding the two products is provided in the following table: Direct Labor Hours per
Performance Products Corporation makes two products, Titanium Rims and Posts. Data regarding the two products is provided in the following table:
Direct Labor Hours per Unit | Annual Production | |
Rims | 0.40 | 20,000 units |
Posts | 0.20 | 80,000 units |
Additional information about the company follows:
Rims require $17.00 in direct materials per unit, and Posts require $10.00.
The direct labor wage rate is $16.00 per hour.
Rims are more complex to manufacture than Posts, and they require special equipment.
The Activity Based Costing (ABC) System has the following activity cost pools:
Activity Cost Pool | Activity Measure | Estimated Overhead Cost | Rims | Posts | Total Activity for Rims and Posts |
Machine Setups | Number of Machine Setups | $21,600 | 100 | 80 | 180 |
Special Processing | Machine Hours | $180,000 | 4,000 | 0 | 4,000 |
General Factory | Direct Labor Hours | $288,000 | 8,000 | 16,000 | 24,000 |
Required - Use the tables on the following page to determine the following required components:
In order to receive full credit please show all work!!
Compute the activity rate for each activity pool.
Determine the amount of manufacturing overhead assigned to each product (Rims and Posts) for each activity cost pool.
Determine the unit product cost of each product (Rims and Posts) according to the ABC system.
1. Compute the activity rate for each activity pool.
Activity Cost Pool | Estimated Overhead Cost | Expected Activity | Activity Rate |
Machine Setups | |||
Special Processing | |||
General Factory | |||
2. Overhead is assigned to the two products as follows:
Rims:
Activity Cost Pool | Activity Rate | Activity | ABC Cost |
Machine Setups | |||
Special Processing | |||
General Factory | |||
Total Factory Overhead | |||
Posts:
Activity Cost Pool | Activity Rate | Activity | ABC Cost |
Machine Setups | |||
Special Processing | |||
General Factory | |||
Total Factory Overhead | |||
Determine the total and unit product cost of each product (Rims and Posts) according to the ABC system.
Rims | Posts | |
Direct materials: | ||
Direct labor: | ||
Manufacturing Overhead: | ||
Unit cost | ||
Part II
List and describe the steps (in order) for Implementing Activity Based and Costing.
Identify and describe the limitations of Activity Based Costing.
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