Question

Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows:

1	Activity	Activity Pool Cost	Activity Base
2	Procurement	$51,030.00	Number of purchase orders
3	Scheduling	4,944.00	Number of production orders
4	Materials handling	15,207.00	Number of moves
5	Product development	9,130.00	Number of engineering changes
6	Total cost	$80,311.00

The estimated activity-base usage and unit information for two product lines was determined as follows:

	Number of
	Purchase Orders	Production Orders	Moves	Engineering Change Orders	Units
Ovens	407	132	211	68	826
Refrigerators	223	74	200	42	584
Totals	630	206	411	110	1,410

Required:

Complete the Activity Tables for ovens and refrigerators.

a.	Determine the activity rate for each activity cost pool. Enter these rates in the Activity Rate columns.
b.	Use the activity rates in (a) to determine the activity-based cost per unit of each product. Round the per-unit rates to the nearest cent.

Answer 1

(a)

Activity	Activity pool cost (i)	Activity base	Number (ii)	Activity rate (i)/(ii)
Procurement	51,030	Number of purchase orders	630	$81
Scheduling	4,944	Number of production orders	206	$24
Material handling	15,207	Number of moves	411	$37
Product development	9,130	Number of engineering changes	110	$83

(b)

Calculation of activity based cost per unit

	Oven	Refrigerators
Procurement	407 x 81 = 32,967	223 x 81 = 18,063
Scheduling	132 x 24 = 3,168	74 x 24 = 1,776
Materials handling	211 x 37 = 7,807	200 x 37 = 7,400
Product development	68 x 83 = 5,229	42 x 83 = 3,486
	Total = $49,171	Total = $30,725

Hence, cost per unit of oven = 49,171/826

= $59.5

Hence, cost per unit of refrigerator = 30,725/584

= $52.6