Question

1. Activity-Based Determining the cost of a product.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			$482,400
   Changing the characteristics of a machine to produce a different product.Setup			305,900
   Inspection			127,400
   Shipping			117,600
   Customer service			39,900
   	Total		$1,073,200

   The A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior.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			2,950		180		280		840		30		7,375
   Brown sugar			1,880		270		420		2,310		190		4,700
   Powdered sugar			1,870		250		700		1,050		80		4,675
   	Total		6,700		700		1,400		4,200		300		16,750

   Each product requires 0.9 machine hour per unit.

   Required:

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

   1. Determine the The cost of an activity per unit of activity base.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

   • volume
   • sales mix

Answer 1

1.

Activity cost pool	Budgeted overhead cost	Activity base	Activity rate
Production	$482,400	6,700	$72	per machine hour
Setup	305,900	700	437	per setup
Inspection	127,400	1,400	91	per move
Shipping	117,600	4,200	28	per customer order
Customer service	39,900	300	133	per customer service request

2.

	White sugar	Brown sugar	Powdered sugar
Production	$212,400 (2,950*$72)	$135,360 (1,880*$72)	$134,640 (1,870*$72)
Setup	78,660 (180*$437)	117,990 (270*$437)	109,250 (250*$437)
Inspection	25,480 (280*$91)	38,220 (420*$91)	63,700 (700*$91)
Shipping	23,520 (840*$28)	64,680 (2,310*$28)	29,400 (1,050*$28)
Customer service	3,990 (30*$133)	25,270 (190*$133)	10,640 (80*$133)
Total activity cost	$344,050	$381,520	$347,630
Units produced	7,375	4,700	4,675
Activity cost per unit	$46.65	$81.17	$74.36

3.

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