Question

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

Calculate the overhead cost per unit. Round your answers to the nearest cent.

	Overhead 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	$

Answer 1

	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

Unit overhead cost
Unit cost
Basic	$20.38
Advanced	$36.36

Consumption Ratio

Basic = 432,000*900/2700

= $144,000

Advanced = 432,000*18000/27,000 = $288,000