Question

# Activity-Based Product Costing Roberts Company produces two weed eaters: basic and advanced. The company has four...

Activity-Based Product Costing

Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below.

 Basic Advanced Total Units produced 80,000 240,000 — Prime costs \$6,240,000 \$24,960,000 \$31,200,000 Machine hours 80,000 400,000 480,000 Engineering hours 500 4,500 5,000 Receiving orders 200 600 800 Inspection hours 900 1,800 2,700 Overhead costs: Machining \$6,720,000 Engineering 2,900,000 Receiving 304,000 Inspecting products 432,000

Required:

1. Calculate the four activity rates.

 Machining rate \$ per machine hour Engineering rate \$ per hour Receiving rate \$ per order Inspecting rate \$ per hour

2. Calculate the unit costs using activity rates. Round your answers to the nearest cent.

 Unit cost Basic \$ per unit Advanced \$ per unit

3. If consumption ratios instead of activity rates were used to assign costs instead of activity rates, show the cost assignment for the inspection activity.

 Cost assignment Basic \$ Advanced \$

 Basic Advanced Units produced 80,000 240,000 Prime costs \$6,240,000 \$24,960,000 Machine hours 80,000 400,000 Engineering hours 500 4,500 Receiving orders 200 600 Inspection hours 900 1,800 Overhead costs: Machining \$6,720,000 Engineering 2,900,000 Receiving 304,000 Inspecting products 432,000 1.Activity Rate = Overhead Cost/Total Activity Machining rate \$14 \$ per machine hour Engineering rate \$580 \$ per hour Receiving rate \$380 \$ per order Inspecting rate \$160 \$ per hour Unit cost Unit cost Basic \$98.38 Advanced \$140.36

Consumption Ratio

Basic = 432,000*900/2700

= \$144,000

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