Question

Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

1	Activity	Budgeted Activity Cost
2	Production	$500,000.00
3	Setup	144,000.00
4	Inspection	44,000.00
5	Shipping	115,000.00
6	Customer service	84,000.00
7	Total	$887,000.00

The activity bases identified for each activity are as follows:

Activity	Activity Base
Production	Machine hours
Setup	Number of setups
Inspection	Number of inspections
Shipping	Number of customer orders
Customer service	Number of customer service requests

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

	Machine	Number of	Number of	Number of	Customer Service
	Hours	Setups	Inspections	Customer Orders	Requests	Units
White sugar	5,000	85	220	1,150	60	10,000
Brown sugar	2,500	170	330	2,600	350	5,000
Powdered sugar	2,500	195	550	2,000	190	5,000
Total	10,000	450	1,100	5,750	600	20,000

Each product requires 0.5 machine hour per unit.

Complete the Activity Table for White sugar. 1. Determine the activity rate for each activity.* 2. Use the activity rates in (1) to determine the total and per-unit activity costs associated with all three products.*
	* If required, round all per-unit amounts to the nearest cent.
		White sugar
Activity		Activity-
		Base		Activity		Activity
		Usage	X	Rate	=	Cost
Production		insp. hours
Setup
Inspection
Shipping
Customer service
Total activity cost
÷ Units					÷
Activity cost per unit

	Complete the Activity Table for Brown sugar. 1. Determine the activity rate for each activity.* 2. Use the activity rates in (1) to determine the total and per-unit activity costs associated with all three products.* * If required, round all per-unit amounts to the nearest cent.
		Brown sugar
Activity		Activity-
		Base		Activity		Activity
		Usage	X	Rate	=	Cost
Production		insp. hours
Setup
Inspection
Shipping
Customer service
Total activity cost
÷ Units					÷
Activity cost per unit

P

	Complete the Activity Table for Powdered sugar. 1. Determine the activity rate for each activity.* 2. Use the activity rates in (1) to determine the total and per-unit activity costs associated with all three products.* * If required, round all per-unit amounts to the nearest cent.
		Powdered sugar
Activity		Activity-
		Base		Activity		Activity
		Usage	X	Rate	=	Cost
Production
Setup
Inspection
Shipping
Customer service
Total activity cost
÷ Units					÷
Activity cost per unit

Answer 1

1. Calculation of Activity Rate

Activity	Calculation	Final rate
Production
Set up
Inspection
Shipping
Customer service

2. Calculation of the total and per-unit activity cost for all three products.

Activity	Total Cost	Basis	Ratio	White Sugar	Brown Sugar	Powdered Sugar
Production	$500,000	M/c Hour	2:1:1	$250,000	$125,000	$125,000
Set up	$144,000	Set up	85:170:195	$27,200	$54,400	$62,400
Inspection	$44,000	Inspection no.	2:3:5	$8,800	$13,200	$22,000
Shipping	$115,000	Customer order	23:52:40	$23,000	$52,000	$40,000
Customer service	$84,000	Customer service request	6:35:19	$8,400	$49,000	$26,600
Total	$887,000			$317,400	$293,600	$276,000
Units				10,0000	5,000	5,000
Cost per unit				$31.74	$58.72	$55.20

Table showing total activity cost and cost per unit

Product	Total Activity Cost	Activity Cost Per Unit
White sugar	$317,400	$31.74
Brown sugar	$293,600	$58.72
Powdered sugar	$276,000	$55.20

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