Question

1. Zeus Industries manufactures two types of electrical power units, custom and standard, which involve four factory overhead activities—production setup, procurement, quality control, and materials management. An activity analysis of the overhead revealed the following estimated activity costs and activity bases for these activities:

   Activity	Activity Cost		Activity Base
   Production setup	$ 81,000		Number of setups
   Procurement	145,000		Number of purchase orders (PO)
   Quality control	188,500		Number of inspections
   Materials management	80,000		Number of components
   Total	$494,500

   The activity-base usage quantities for each product are as follows:

   	Setups		Purchase     Orders		Inspections		Components		Unit Volume
   Custom	450		1,050		2,100		250		2,000
   Standard	150		400		800		150		2,000
   Total	600		1,450		2,900		400		4,000

   a. Determine an activity rate for each activity.

   Activity Rates	Production Setup		Procurement		Quality Control		Materials Management
   Activity cost	$		$		$		$
   ÷ Activity base
   Activity rate	$	/setup	$	/PO	$	/inspection	$	/component

   b. Assign activity costs to each product and determine the unit activity cost, using the activity rates from part (a). Round unit costs to the nearest cent.

   	Custom		Standard
   Setups Total	$		$
   Purchase Orders Total
   Inspections Total
   Components Total
   Total product cost	$		$
   Unit volume
   Unit cost	$		$

   c. Assume that each product required one direct labor hour per unit. Determine the per-unit cost if factory overhead is allocated on the basis of direct labor hours. Round your answer to the nearest cent.
   $per unit

   d. The custom product will consume   materials management activities than will the standard product.

Check My Work3 more Check My Work uses remaining.

Answer 1

a.

Activity rates	Production setups	Procurement	Quality control	Materials management
Activity costs	$81,000	$145,000	$188,500	$80,000
Activity base	600	1,450	2,900	400
Activity rate	$135 /setup	$100 /PO	$65 /inspection	$200 /component

b.

	Custom	Standard
Setup totals	$60,750 (450*$135)	$20,250 (150*$135)
Purchase orders totals	105,000 (1,050*$100)	40,000 (400*$100)
Inspections totals	136,500 (2,100*$65)	52,000 (800*$65)
Components totals	50,000 (250*$200)	30,000 (150*$200)
Total product costs	$352,250	$142,250
Unit volume	2,000	2,000
Unit cost	$176.13	$71.13

c.

Direct labor hours = 4,000 hours

Factory overhead rate = $494,500 / 4,000 = $123.625

Per unit cost = 4,000*$123.625 / 4,000 = $123.63 (rounded of)

d.

The custom product will consume more materials management activities than will the standard product.