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				$322,900							Number of purchase orders
Scheduling				$233,900							Number of production orders
Materials handling				$499,900							Number of moves
Product development				$783,400							Number of engineering changes
Production				$1,595,000							Machine hours
	Number of Purchase Orders			Number of Production Orders				Number of Moves			Number of Engineering Changes				Machine Hours			Number of Units
Disk drives	4,200			410				1,460			15				2,100			2,100
Tape drives	1,800			165				590			8				8,900			3,900
Wire drives	12,300			900				3,500			30				11,300			3,000

Determine the activity-based cost for each disk drive unit.

a.$642.18

b.$222.01

c.$305.96

d.$17.64

Answer 1

		A	Budgeted Activity of Cost Driver			B	A/B
	Activity Cost Pools	Budgeted Cost	Disk Drives	Tape Drives	Wire Drives	Total Activity	Activity Rate
	Procurement	322900	4200	1800	12300	18300	17.64
	Scheduling	233900	410	165	900	1475	158.58
	Material Handling	499900	1460	590	3500	5550	90.07
	Product Development	783400	15	8	30	53	14,781.13
	Production	1595000	2100	8900	11300	22300	71.52
	Allocation to Disk Drive:	Activity Rate	Activity Level-Disk Drive	Activity Rate
	Procurement	17.64	4200	74,108.20
	Scheduling	158.58	410	65,016.27
	Material Handling	90.07	1460	1,31,505.23
	Product Development	14,781.13	15	2,21,716.98
	Production	71.52	2100	1,50,201.79
			Total	6,42,548.47
			Total Units	2100
			PU Cost	305.98
	Answer is $305.96/- (Rounding Off Difference)