Question

Activity-Based Costing

Zeus Industries manufactures two types of electrical power units, custom and standard, which involve four factory overhead activities—production setup, procurement, quality control, and materials management. An activity analysis of the overhead revealed the following estimated activity costs and activity bases for these activities:

Activity	Activity Cost		Activity Base
Production setup	$ 100,000		Number of setups
Procurement	104,500		Number of purchase orders (PO)
Quality control	165,000		Number of inspections
Materials management	164,000		Number of components
Total	$533,500

The activity-base usage quantities for each product are as follows:

	Setups		Purchase     Orders		Inspections		Components		Unit Volume
Custom	500		1,000		2,000		450		1,000
Standard	300		100		200		350		1,000
Total	800		1,100		2,200		800		2,000

a. Determine an activity rate for each activity.

Activity Rates	Production Setup		Procurement		Quality Control		Materials Management
Activity cost	$		$		$		$
÷ Activity base
Activity rate	$	/setup	$	/PO	$	/inspection	$	/component

b. Assign activity costs to each product and determine the unit activity cost, using the activity rates from part (a). Round unit costs to the nearest cent.

	Custom		Standard
Setups Total	$		$
Purchase Orders Total
Inspections Total
Components Total
Total product cost	$		$
Unit volume
Unit cost	$		$

c. Assume that each product required one direct labor hour per unit. Determine the per-unit cost if factory overhead is allocated on the basis of direct labor hours. Round your answer to the nearest cent.
$per unit

d. The custom product will consume   materials management activities than will the standard product.

Answer 1

A)

Determine an activity rate for each activity.

Activity Rates	Production Setup	Procurement	Quality Control	Materials Management
Activity cost	100000	104500	165000	164000
÷ Activity base	800	1100	2200	800
Activity rate	125	95	75	205
	$125/ setup	90/ PO	$ 75/ INSPECTION	$205 / Component

B)

Assign activity costs to each product and determine the unit activity cost, using the activity rates from part (a). Round unit costs to the nearest cent.

C)

Assume that each product required one direct labor hour per unit. Determine the per-unit cost if factory overhead is allocated on the basis of direct labor hours.

=Total factory overhead / Total Direct labor hour

=533500/2000

=$ 266.75 per hour

D)

The custom product will consume more  materials management activities than will the standard product