Question

Product Costs using Activity Rates

Atlas Enterprises Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

Activity	Activity Rate
Fabrication	$25	per machine hour
Assembly	$15	per direct labor hour
Setup	$51	per setup
Inspecting	$26	per inspection
Production scheduling	$16	per production order
Purchasing	$13	per purchase order

The activity-base usage quantities and units produced for each product were as follows:

Activity Base	Elliptical Machines		Treadmill
Machine hours	1,808		1,067
Direct labor hours	469		183
Setups	55		17
Inspections	649		389
Production orders	63		13
Purchase orders	178		109
Units produced	277		186

Use the activity rate and usage information to calculate the total activity cost and activity cost per unit for each product. If required, round the per unit answers to the nearest cent.

	Total Activity Cost	Activity Cost Per Unit
Elliptical Machines	$	$
Treadmill	$	$

Answer 1

Ans.		Total activity cost	Activity cost per unit
	Elliptical machines	75236	271.61
	Treadmill	42026	225.95
	*Calculation:
	Activity (a)	Activity rate (b)		Elliptical machines ©	Total activity cost (b*c)	Treadmill (d)	Total activity cost (b*d)
	Fabrication	25	per machine hour	1808	45200	1067	26675
	Assembly	15	per direct labor hour	469	7035	183	2745
	Setup	51	per setup	55	2805	17	867
	Inspecting	26	per inspection	649	16874	389	10114
	Production scheduling	16	per production order	63	1008	13	208
	Purchasing	13	per purchaes order	178	2314	109	1417
				Total Activity Cost	75236		42026
	Activity cost per unit = Total activity cost / No. of units produced
	Elliptical machines		75236 / 277       =	271.61 per unit
	Treadmill		42026 / 186       =	225.95 per unit