Question

Activity Rates and Activity-Based Product Costing

Hammer Company produces a variety of electronic equipment. One of its plants produces two laser printers: the deluxe and the regular. At the beginning of the year, the following data were prepared for this plant:

	Deluxe	Regular
Quantity	100,000	800,000
Selling price	$900	$750
Unit prime cost	$529	$483

In addition, the following information was provided so that overhead costs could be assigned to each product:

Activity Name	Activity Driver	Deluxe	Regular	Activity Cost
Setups	Number of setups	300	200	$2,000,000
Machining	Machine hours	100,000	300,000	80,000,000
Engineering	Engineering hours	50,000	100,000	6,000,000
Packing	Packing orders	100,000	400,000	100,000

Required:

1. Calculate the overhead rates for each activity. (Round to two decimal places.)

Setups	$ per setup
Machining	$ per machine hour
Engineering	$ per engineering hour
Packing	$ per packing order

2. Calculate the per-unit product cost for each product. (Round to the nearest dollar.)

Deluxe	$per unit
Regular	$

Answer 1

1.

Setups	4000	per setup	[2,000,000/(300+200)]
Machining	200	per machine hour	[80,000,000/(400000)]
Engineering	40	per engineering hour	[6,000,000/150000]
Packing	0.20	per packing order	[100000/500000]

2.

	Deluxe	Regular
Unit prime cost	529	483
ABC cost per unit	232.20	81.10
Per unit product cost	761.20	564.10

Workings:

	Deluxe	Regular
Setups	1200000	800000
Machining	20000000	60000000
Engineering	2000000	4000000
Packing	20000	80000
Total activity cost based	23220000	64880000
Quantity	100,000	800,000
ABC cost per unit	232.20	81.10