Question

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below.

				Activity Cost							Activity Base
Procurement				$335,400							Number of purchase orders
Scheduling				$209,600							Number of production orders
Materials handling				$423,300							Number of moves
Product development				$737,600							Number of engineering changes
Production				$1,496,700							Machine hours
	Number of Purchase Orders			Number of Production Orders				Number of Moves			Number of Engineering Changes				Machine Hours			Number of Units
Disk drives	4,150			390				1,360			15				2,200			1,900
Tape drives	1,700			175				570			6				8,000			3,800
Wire drives	11,100			770				4,000			26				11,300			2,700

Determine the activity-based cost for each disk drive unit.

A. $331.05

B. $674.34

C. $198.12

D. $19.79

Answer 1

SOLUTION

Activity-based cost for each disk drive unit = $331.05

	Activity cost	Cost drivers	Activity rate
Procurement	335,400	16,950	19.79
Scheduling	209,600	1,335	157
Materials handling	423,300	5,930	71.38
Product development	737,600	47	15,693.62
Production	1,496,700	21,500	69.61

Activity-based cost for each disk drive unit-

Activities	Calculations	Amount
Procurement	19.79 * 4,150	82,128.50
Scheduling	157 * 390	61,230
Materails Handling	71.38 * 1,360	97,076.80
Product development	15,693.62 * 15	235,404.30
Production	69.61 * 2,200	153,142
		628,981.60
Units		1,900
Cost per unit	628,981.60 / 1,900	331.05