Question

Zeus Industries manufactures two types of electrical power units, custom and standard, which involve four factory...

  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.

Homework Answers

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.

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