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 | $370,000 | Number of purchase orders | |
| Scheduling | 250,000 | Number of production orders | |
| Materials handling | 500,000 | Number of moves | |
| Product development | 730,000 | Number of engineering changes | |
| Production | 1,500,000 | Machine hours | |
| Number of Purchase Orders |
Number of Production Orders |
Number of Moves |
Number of Engineering Changes |
Machine Hours |
Number of Units |
|||||||
| Disk drives | 4,000 | 300 | 1,400 | 10 | 2,000 | 2,000 | ||||||
| Tape drives | 4,000 | 150 | 800 | 10 | 8,000 | 4,000 | ||||||
| Wire drives | 12,000 | 800 | 4,000 | 25 | 10,000 | 2,500 | ||||||
Determine the activity-based cost for each tape drive unit.
a.$394.12
b.$232.69
c.$97.73
d.$103.84
Procurement cost per unit of Tape drive = [$370,000 * 4,000 / (4,000 + 4,000 + 12,000)] / 4,000
= $18.5
Scheduling cost per unit of Tape drive = [$250,000 * 150 / (300 + 150 + 800)] / 4,000
= $7.5
Materials handling cost per unit of Tape drive = [$500,000 * 800 / (1,400 + 800 + 4,000)] / 4,000
= $16.13
Product development cost per unit of Tape drive = [$730,000 * 10 / (10 + 10 + 25)] / 4,000
= $40.56
Production cost per unit of Tape drive = $1,500,000 * 8,000 / (2,000 + 8,000 + 10,000)] / 4,000
= $150
Activity based cost for eact tape drive unit = $18.5 + $7.5 + $16.13 + $40.56 + $150
= $232.69
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