Question

In: Accounting

Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire...

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

Solutions

Expert Solution

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


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