Question

Typhoon Corp. has estimated the following activity rates, activity consumption, and direct costs for their Whirlpool Surfboard product line. Assume that Typhoon plans to manufacture and sell 100,000 units of the Whirlpool Surfboard product, generating $15,000,000 in sales revenue. What is the Whirlpool Surfboard product line profit using activity-based costing? Activity Activity Rate Customer relations $2,000 per customer Product design $10,000 per design Manufacturing $50 per machine hour Organization-sustaining N/A Traceable Direct Costs Cost per unit Direct Material $40.00 Direct Labor $27.00 Shipping $4.00 Whirlpool Surfboard Activity Consumption 400 customers 80 designs 50,000 machine hours A. $10.9 million B. $3.8 million C. $7.9 million D. $8.3 million

Answer 1

Activity	Activity Rate x		Activity consumption		= Activity Amount
Customer relations	$2,000	per customer	400	customers	$           800,000
Product design	$10,000	per design	80	designs	$           800,000
Manufacturing	$50	per machine hour	50000	machine hours	$        2,500,000
Total Activity based overhead*					$        4,100,000
Activity amount = activity rate x activity consumption
Direct Material	$40.00
Direct Labor	$27.00
Shipping	$4.00
Total Direct Cost per unit	$71.00
x Units sold	x 100,000
Total Direct Cost	7100000
Add: Overhead(activity based)*	4100000	as above
Total cost	$    11,200,000
Sales	$         15,000,000	given
Less: Total cost	$         11,200,000	as caclulated above
Profit	$           3,800,000	Ans is B 3.8M