Question

Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows:

1	Activity	Activity Pool Cost	Activity Base
2	Procurement	$82,012.00	Number of purchase orders
3	Scheduling	5,112.00	Number of production orders
4	Materials handling	14,212.00	Number of moves
5	Product development	5,670.00	Number of engineering changes
6	Total cost	$107,006.00

The estimated activity-base usage and unit information for two product lines was determined as follows:

	Number of
	Purchase Orders	Production Orders	Moves	Engineering Change Orders	Units
Ovens	465	141	210	58	777
Refrigerators	242	72	208	32	541
Totals	707	213	418	90	1,318

	Required:
	Complete the Activity Tables for ovens and refrigerators. a. Determine the activity rate for each activity cost pool. Enter these rates in the Activity Rate columns. b. Use the activity rates in (a) to determine the activity-based cost per unit of each product. Round the per-unit rates to the nearest cent.

Answer 1

Requirement a

Calculation of Activity rates
Activity Cost Pool	Activity Measure	Estimated Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Procurement	Number of purchase orders	$ 82,012.00	707	$ 116.00	Per purchase order
Scheduling	Number of production orders	$    5,112.00	213	$    24.00	per Production order
Materials handling	Number of moves	$ 14,212.00	418	$    34.00	per move
Product development	Number of engineering changes	$    5,670.00	90	$    63.00	per engineering change
Total		$ 107,006.00

Requirement b

Cost assigned to Ovens
	Activity rate(A)	Activity Driver Incurred (B)	Overhead Assigned (C=A*B)
Procurement	$   116.00	465	$      53,940.00
Scheduling	$     24.00	141	$        3,384.00
Materials handling	$     34.00	210	$        7,140.00
Product development	$     63.00	58.00	$        3,654.00
Total Overheads			$      68,118.00
Production			777.00
Overhead cost per unit			$              87.67

Cost assigned to Refrigerators
Cost assigned to Ovens	Activity rate(A)	Activity Driver Incurred (B)	Overhead Assigned (C=A*B)
Procurement	$   116.00	242	$      28,072.00
Scheduling	$     24.00	72	$        1,728.00
Materials handling	$     34.00	208	$        7,072.00
Product development	$     63.00	32.00	$        2,016.00
Total Overheads			$      38,888.00
Production			541.00
Overhead cost per unit			$              71.88