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		$12,600		Number of purchase orders
Scheduling		90,000		Number of production orders
Materials handling		11,000		Number of moves
Product development		50,000		Number of engineering changes
Total cost		$163,600

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			400			800			300			80			1,000
Refrigerators			300			400			200			120			500
	Totals		700			1,200			500			200			1,500

a. Determine the activity rate for each activity cost pool.

Procurement (per purchase order)	$fill in the blank 1
Scheduling (per production order)	$fill in the blank 2
Materials handling (per move)	$fill in the blank 3
Product development (per engineering change order)	$fill in the blank 4

b. Determine the activity-based cost per unit of each product. Round the per unit rates to the nearest cent.

Ovens	$fill in the blank 5 per unit
Refrigerators	$fill in the blank 6 per unit

Answer 1

• Requirement [a]

			Total Activity base	Activity rate
Activity	Activity Pool Cost	Activity Base	Total
Procurement	$12,600	Number of purchase orders	700	$18.00	per Number of purchase orders
Scheduling	$90,000	Number of production orders	1200	$75.00	per Number of production orders
Materials handling	$11,000	Number of moves	500	$22.00	per Number of moves
Product development	$50,000	Number of engineering changes	200	$250.00	per Number of engineering changes
Total cost	$163,600

• [b]

	Ovens		Refrigerators
	Cost allocated	Working	Cost allocated	Working
Procurement	$7,200	400 Number of purchase orders x $ 18	$5,400	300 Number of purchase orders x $ 18
Scheduling	$60,000	800 Number of production orders x $ 75	$30,000	400 Number of production orders x $ 75
Materials handling	$6,600	300 Number of moves x $ 22	$4,400	200 Number of moves x $ 22
Product development	$20,000	80 Number of engineering changes x $ 250	$30,000	120 Number of engineering changes x $ 250
Total Overhead cost allocated	$                                                                          93,800		$                                                                              69,800
Total units	1000		500
Activity based cost per unit	$                                                                            93.80		$                                                                              139.60