Question

Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

Activity		Budgeted Activity Cost
Production			$466,200
Setup			219,500
Inspection			106,600
Shipping			133,200
Customer service			48,000
	Total		$973,500

The activity bases identified for each activity are as follows:

Activity	Activity Base
Production	Machine hours
Setup	Number of setups
Inspection	Number of inspections
Shipping	Number of customer orders
Customer service	Number of customer service requests

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

			Machine Hours		Number of Setups		Number of Inspections		Number of Customer Orders		Customer Service Requests		Units
White sugar			3,260		130		260		740		40		8,150
Brown sugar			2,070		190		390		2,040		250		5,175
Powdered sugar			2,070		180		650		920		110		5,175
	Total		7,400		500		1,300		3,700		400		18,500

Each product requires 0.9 machine hour per unit.

Required:

If required, round all per unit amounts to the nearest cent.

1. Determine the activity rate for each activity.

Production	$ per machine hour
Setup	$ per setup
Inspection	$ per move
Shipping	$ per cust. ord.
Customer service	$ per customer service request

2. Determine the total and per-unit activity cost for all three products.

	Total Activity Cost	Activity Cost Per Unit
White sugar
Brown sugar
Powdered sugar

3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?

The unit costs are different because the products consume many activities in ratios different from the -?volume/sales mix?- .

Answer 1