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: Activity Activity Pool Cost Activity Base Procurement $158,400 Number of purchase orders Scheduling 10,080 Number of production orders Materials handling 32,560 Number of moves Product development 27,600 Number of engineering changes Total cost $228,640 The estimated activity-base usage and unit information for two product lines was determined as follows: Number of Purchase Orders Number of Production Orders Number of Moves Number of Engineering Change Orders Units Ovens 600 240 440 140 1,420 Refrigerators 600 120 300 60 1,080 Totals 1,200 360 740 200 2,500 a. Determine the activity rate for each activity cost pool. If required, round your answers to the nearest dollar. Procurement (per purchase order) $ Scheduling (per production order) $ Materials handling (per move) $ Product development (per engineering change order) $ b. Determine the activity-based cost per unit of each product. Round your answers to the nearest cent. Ovens $ per unit Refrigerators $ per unit

Answer 1

Solution a:

Computation of activity rate
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate
					Procurement	$158,400.00	Nos of purchase orders	1200	$132.00
Scheduling	$10,080.00	Nos of production orders	360	$28.00
Materials handling	$32,560.00	Nos of moves	740	$44.00
Product Development	$27,600.00	Nos of engineering changes	200	$138.00

Solution b:

Computatation of activity based cost per unit of each model
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Ovens		Refrigerator
					Usage	Allocated Costs	Usage	Allocated Costs
Procurement	$158,400.00	Nos of purchase orders	1200	$132.00	600	$79,200.00	600	$79,200.00
Scheduling	$10,080.00	Nos of production orders	360	$28.00	240	$6,720.00	120	$3,360.00
Materials handling	$32,560.00	Nos of moves	740	$44.00	440	$19,360.00	300	$13,200.00
Product Development	$27,600.00	Nos of engineering changes	200	$138.00	140	$19,320.00	60	$8,280.00
Total	$228,640.00					$124,600.00		$104,040.00
Nos of units						1420		1080
Per unit cost						$87.75		$96.33