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Hi Tech Products manufactures three (3) types of CD players: Cheap, Econo and Deluxe. Hi Tech...

Hi Tech Products manufactures three (3) types of CD players: Cheap, Econo and Deluxe. Hi

Tech uses an activity-based product costing system. The company has identified five (5)

activities. Each activity, its cost and related activity driver are identified below:

Activity                                                    Activity Cost                                            Activity Driver

Material handling                                  $225 000                                                   Number of parts

Material insertion                                 $2 475 000                                               Number of parts

Automated machinery                          $840 000                                                   Machine hours

Finishing                                                   $170 000                                                   Labour hours

Packaging                                                 $170 000                                                   Orders shipped

Total manufacturing cost                    $3 880 000

The following information pertains to each product line of CD players:

                                                        Cheap                             Econo                                Deluxe

Units to be produced                  10 000                             5000                                 2000

Orders to be shipped                  1000                                 500                                     200

Number of parts per unit           10                                     15                                        25

Machine hours per unit             1                                       3                                            5

Labour hours per unit                 2                                       2                                             2

Under an activity-based product costing system, what is the cost per unit of Cheap?

Solutions

Expert Solution

Answer :

Calculation of the cost per unit of Cheap :

Activity Activity Cost Cheap's share Cost per unit
Material handling   $225,000 = $225,000 x 10 / (10 + 15 + 25) $45,000
Material insertion $2,475,000 = $2,475,000 x 10 / (10 + 15 + 25) $495,000
Automated machinery $840,000 = $840,000 x 1 / (1 + 3 + 5) $93,333
Finishing $170,000 = $170,000 x 2 / (2 + 2 + 2) $56,667
Packaging $170,000 = $170,000 x 1000 / (1000 + 500 + 200) $100,000
Total manufacturing cost (a) $790,000
Cost per unit a / 10,000 units $79

The cost per unit of Cheap is $79.

ekkarill92 answered 2 years ago
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