Question

Solar Salt has determined that its total manufacturing cost of $700,000 is a mixture of unit-level costs, batch-level costs, and product line costs. Solar Salt has assembled the following information concerning the manufacturing costs and the driver used to allocate the costs in each activity pool (units, batches, and lines respectively).

	Total Manufacturing Costs	Agricultural Products	Retail Products
Unit-level costs	$210,000	8,000 units	13,000 units
Batch-level costs	280,000	40 batches	90 batches
Product line costs	210,000	10 lines	12 lines
	$700,000

Revenues for the Agricultural Products totaled $600,000. Revenue for Retail Products totaled $350,000. How much will gross profit in the agriculture division be if Solar Salt adopts an activity-based costing system?

(Please round your answer to the nearest dollar at the end of your answer.)

Answer 1

The first step is to compute the cost rates.

Unit level costs per unit = 210,000/(8000+13000) = $10 per unit

Batch level costs per batch = 280,000/(40+90) = $2,153.85

Product line cost per line = 210,000/(10+22) = $9,545.45

Thus total costs for agricultural division = $10 per unit*8000 units + $2,153.85 per batch*40 batches + $9,545.45 per line*10 lines

= $261,608.39

Gross profit of agricultural division = revenue - costs

= $600,000 - $261,608.39

= $338,391.61

This will be rounded to $338,392