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 five separate activity pools. The budgeted activity cost and activity base data by product are provided below.

	Activity Cost		Activity Base
Procurement	$370,000		Number of purchase orders
Scheduling	250,000		Number of production orders
Materials handling	500,000		Number of moves
Product development	730,000		Number of engineering changes
Production	1,500,000		Machine hours

	Number of Purchase Orders	Number of Production Orders	Number of Moves	Number of Engineering Changes	Machine Hours	Number of Units
Disk drives	4,000	300	1,400	10	2,000	2,000
Tape drives	4,000	150	800	10	8,000	4,000
Wire drives	12,000	800	4,000	25	10,000	2,500

The activity-based cost for each wire drive unit is

a.$744.06

b.$204.13

c.$173.51

d.$394.12

Answer 1

Correct Option:a.$744.06

Explanation:

Activity Rate
Activity	Total Overheads	Estimated Activity Level		Rate Per Activity
Number of purchase orders	$             3,70,000	20000		$                18.50
Number of production orders	$             2,50,000	1250		$              200.00
Number of moves	$             5,00,000	6200		$                80.65
Number of engineering changes	$             7,30,000	45		$        16,222.22
Machine hours	$           15,00,000	20000		$                75.00
	$           33,50,000

Activity	Rate Per Activity		Activity Level	Total Overhead
a	b		c	d=b*c
Number of purchase orders	$          18.50		12000	$         2,22,000.00
Number of production orders	$       200.00		800	$         1,60,000.00
Number of moves	$          80.65		4000	$         3,22,580.65
Number of engineering changes	$ 16,222.22		25	$         4,05,555.56
Machine hours	$          75.00		10000	$         7,50,000.00
Total				$      18,60,136.20

Per unit rate = $1860136.20/2500 units

=$744.06