Problem 4: Activity Based Costing (5 + 11 + 3 = 19 points) Activities Activity Cost Pool Activity Base Machining $325,000 Machine Hours (MH) Setup $126,000 Number of Setup Materials handling $30,000 Number of Material orders (MO) Engineering $144,000 Number of Eng. Hours (EH) Inspection $120,000 Number of Insp. Hours (IH) $745,000 The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Name of the Number of Number of Setups Number of Number of Number of IH Number of Units Products Machine hour Material orders Engineering hours Inspection hours Produced Standard 2,700 280 400 180 350 2,700 Premium 1,500 220 350 200 350 1,500 Super 800 200 450 220 300 800 Total 5,000 700 1,200 600 1,000 Each product requires 60 minutes per unit of machine time. Required: 1. Determine the activity rate for each activity. Round all per unit amounts to the nearest cent. Formula: Activity rate = Activity cost pool Number of activity base Activities Activity Cost Pool Number of Activity Base Activity rate Machining Machine Hours Setup Number of Setups Materials handling Number of MO Engineering Number of EH Inspection Number of IH 2. Determine the total and per-unit activity cost for all three products. Round all total costs to whole number and round all per unit amounts to the nearest cent. Formula: Activity-Base Usage x Activity rate from Req. (1) = Activity cost; Sum all activity costs per product to determine the total activity costs and Divide the total activity costs by budgeted units to compute the activity costs per unit for each product. Products Machining Setup Materials handling Engineering Inspection Total activity costs Unit cost Standard Premium Super Total 3.Which of the three products has the highest per unit costs. Briefly explain why. Zhang Inc. manufactures three model of an electronic device (Standard, Premium and Super) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Answer: