Question

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below.

	Activity Cost		Activity Base
Procurement	$307,200		Number of purchase orders
Scheduling	248,600		Number of production orders
Materials handling	457,800		Number of moves
Product development	781,600		Number of engineering changes
Production	1,453,600		Machine hours

	Number of Purchase Orders	Number of Production Orders	Number of Moves	Number of Engineering Changes	Machine Hours	Number of Units
Disk drives	4,150	310	1,450	10	2,000	2,000
Tape drives	1,600	235	510	7	8,500	3,700
Wire drives	11,000	960	3,900	27	11,200	2,700

The activity-based cost for each tape drive unit is

a.$701.81

b.$18.34

c.$276.11

d.$216.69

Answer 1

Product Name	Activity Base
	Number of purchase orders	No. of Production orders	No. of Moves	No. of Engineering changes	Machine Hours	Units Produced
Disk Drivers	4150	310	1450	10	2000	2000
Tape Drivers	1600	235	510	7	8500	3700
Wire Drivers	11000	960	3900	27	11200	2700
Total	16750	1505	5860	44	21700
Cost	Amount		Activity Base		Total	cost per driver
Procurment	307200		Number of Purchase orders	16750	18.34	i.e.307200/16750
Scheduling	248600		Number of production orders	1505	165.18	i.e.248600/1505
Material Handling	457600		Number of moves		5860	78.09	i.e.457600/5860
Product Development	781600		Number of engineering changes	44	17763.64	i.e.781600/44
Production	1453600		Machine Hours		21700	66.99	i.e.1453600/21700
cost of tape driver		No. of drivers used for production	cost per driver	Total Cost
Number of purchase orders	1600			18.34		29,344.00	i.e.1600*18.34
No. of Production orders	235			165.18		38,817.30	i.e.235*165.18
No. of Moves		510			78.09		39,825.90	i.e.510*78.09
No. of Engineering changes	7			17763.64		1,24,345.48	i.e.7*17763.64
Machine Hours		8500			66.99		5,69,415.00	i.e.8500*66.99
							8,01,747.68
				No. of Units Produced	3700
						Answer
				Cost per unit	Option d	216.69	i.e. 801747.68/3700