Question

Activity Rates and Activity-Based Product Costing

Hammer Company produces a variety of electronic equipment. One of its plants produces two laser printers: the deluxe and the regular. At the beginning of the year, the following data were prepared for this plant:

	Deluxe	Regular
Quantity	100,000	800,000
Selling price	$900	$750
Unit prime cost	$529	$483

In addition, the following information was provided so that overhead costs could be assigned to each product:

Activity Name	Activity Driver	Deluxe	Regular	Activity Cost
Setups	Number of setups	300	200	$2,050,000
Machining	Machine hours	100,000	300,000	40,000,000
Engineering	Engineering hours	50,000	100,000	15,000,000
Packing	Packing orders	100,000	400,000	250,000

Required:

1. Calculate the overhead rates for each activity. If required, carry your answers out to the nearest cent.

Setups	$ per setup
Machining	$ per machine hour
Engineering	$ per engineering hour
Packing	$ per packing order

2. Calculate the per-unit product cost for each product. Round your answers to the nearest whole dollar.

Deluxe	$per unit
Regular	$per unit

Answer 1

Setups	$ 4,100 per setup
Machining	$ 100 per machine hour
Engineering	$ 100 per engineering hour
Packing	$0.50 per packing order

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost	Expected Activity (B)	Activity rate (A/B)
Setups	Number of setup	$    20,50,000.00	500	$       4,100.00	Per setup
Machining	Number of machine hour	$ 4,00,00,000.00	400000	$           100.00	Per machine hour
Engineering	Number of engineering hour	$ 1,50,00,000.00	150000	$           100.00	Per engineering hour
Packing	Number of packing order	$      2,50,000.00	500000	$               0.50	Per packing order

Requirement 2

Deluxe	$681.80 per unit
Regular	$ 534.28 per unit

	HUBS	Sprockets
Direct material
Direct labor	$                  529.00	$                   483.00
Overheads	$                  162.80	$                     51.28
Total Cost	$                  691.80	$                   534.28

Cost assigned to Deluxe
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Engineering	$     4,100.00	300	$             12,30,000
Machining	$        100.00	100000	$   1,00,00,000.00
Engineering	$        100.00	50000	$       50,00,000.00
Packing	$             0.50	100000	$             50,000.00
Total Overheads assigned			$   1,62,80,000.00
Production			100000
Overhead cost per unit			$                   162.80

Cost assigned to Regular
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Engineering	$     4,100.00	200	$         8,20,000.00
Machining	$        100.00	300000	$   3,00,00,000.00
Engineering	$        100.00	100000	$   1,00,00,000.00
Packing	$             0.50	400000	$         2,00,000.00
Total Overheads assigned			$   4,10,20,000.00
Production			$         8,00,000.00
Overhead cost per unit			$                     51.28