Question

Barnett Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below.

Activity	Cost			Cost Driver
Material handling	$	234,500			Number of parts
Material insertion		2,494,000			Number of parts
Automated machinery		849,500			Machine hours
Finishing		189,000			Direct labor hours
Packaging		189,000			Orders shipped
Total	$	3,956,000

The following information pertains to the three product lines for next year:

	Economy				Standard				Deluxe
Units to be produced		11,900				6,900				3,900
Orders to be shipped		1,190				690				390
Number of parts per unit		29				34				44
Machine hours per unit		20				22				24
Labor hours per unit		21				21				21

What is Barnett’s pool rate for the material-insertion activity?

Multiple Choice

• $3.32 per part.

• $14.53 per part.

• $4.76 per labor hour.

• $20.00 per part.

• None of the answers is correct.

Answer 1

Answer: $3.32 per Part

Explanation:

Activity Rate = Cost Pool of Activity / Cost Driver   

Given,

Cost Pool of Machine Insertion Activity= $2,494,000

Cost Driver for Material insertion Activity = Number of Parts

Computation of total number of Parts

	Economy	Standard	Deluxe	Total
Units to be produced (A)	11,900	6,900	3,900
Number of Parts per unit    (B)	29	34	44
Total Number of Parts    (A*B)	11,900*29 = 345,100	6,900*34 = 234,600	3,900*44 = 171,600	345,100+234,600+171,600 = 751,300

Material Insertion Activity rate = Total Cost Pool / Cost Driver

= 2,494,000 / 751,300

= 3.32 Per Part (Rounded)