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Activity-Based Product Costing Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar)...

Activity-Based Product Costing

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:

Activity

Budgeted Activity Cost

Production

$444,600

Setup

190,000

Inspection

91,200

Shipping

151,200

Customer service

52,800

Total

$929,800

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 Hours

Number of
Setups

Number of
Inspections

Number of
Customer Orders

Customer
Service
Requests

Units

White sugar

3,430

130

240

720

40

8,575

Brown sugar

2,180

190

360

1,980

250

5,450

Powdered sugar

2,190

180

600

900

110

5,475

Total

7,800

500

1,200

3,600

400

19,500

Each product requires 0.9 machine hour per unit.

Required:

If required, round all per unit amounts to the nearest cent.

1. Determine the activity rate for each activity.

Production

$ per machine hour

Setup

$ per setup

Inspection

$ per move

Shipping

$ per cust. ord.

Customer service

$ per customer service request

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

Total Activity Cost

Activity Cost Per Unit

White sugar

$

$

Brown sugar

Powdered sugar

3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?

The unit costs are different because the products consume many activities in ratios different from the

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