Question

HiTech Products manufactures three types of CD players, Cheap, Econo, and Deluxe. HiTech uses activity-base product costing system. The company has identified five activities and the related cost drivers for each activity.

Activity                                         Budgeted Costs                    Cost Driver

Material Handling                          225,000                                   # of Parts

Material Insertion                          2,475,000                                # of Parts

Automate Machinery                    840,000                                   Machine Hours

Finishing                                       170,000                                   Labor Hours

Packaging                                     170,000                                   Orders Shipped

Total indirect Manufacturing         3,880,000

costs

Following info pertains to each product line of CD players for next year

                                                      Cheap             Econo             Deluxe

Units to be produced                    10,000             5,000               2,000

Orders to be shipped                    1,000               500                  200

# of parts per unit                          10                    15                    25

Machine hours per unit                 1                      3                      5

Labor hours per unit                     2                      2                      2

1. What is HiTech’s cost application ate for material handling activity for next year?
   1. 2.25 per part
   2. 1.00 per unit
   3. 6.62 per labor hour
   4. 13.23 per unit

2. What is HiTech’s application rate for automated machinery activity for next year?
   1. 24.00 per machine hour
   2. 49.42 per unit
   3. 84.00 per machine hour
   4. 24.50 per labor hour
   5. 50.00 per machine hour

3. What is HiTech’s cost application rate for finishing activity for next year?
   1. 10.00 per labor hour
   2. 5.00 per machine hour
   3. 5.00 per unit
   4. 5.00 per labor hour
   5. 7.50 per unit

4. Under an activity-based product costing system, what is the per unit cost of Cheap?
   1. 225.00
   2. 272.00
   3. 164.00
   4. 228.24
   5. 141.00

Can you explain the calculations to each answer?

Answer 1

1 we will find total cost drivers

	cheap	eckono	deluxe	Total cost driver
material handling #number of parts	100000[10per unit*10000units]	75000[ 15 per unit*5000units]	50000[25 per unit*2000units]	225000 parts
material insertion #number parts				----do---- parts
automate machinery # machine hours	10000[1*10000units]	15000[3machine hours*5000units]	10000[5*2000units]	35000 machine hours
finishing labor hours #labor hours	20000[2*10000]	10000[2*5000units]	4000[2*2000units]	34000 labor hours
packaging #orders shipped	1000	500	200	1700 orders

1.material handling activity

= total cost/total cost driver

=225000/225000 [ as calculated above]

=$1

2. 840000/35000 machine hours

=24$ per machine hours

3.170000/34000

=5$ per labor hours

4.cheap unit cost

material handling #number of parts	100000$[$1*100000parts]
material insertion #number parts	$1100000[$2475000/225000parts]*100000parts]
automate machinery # machine hours	240000$[$24*10000machine hours]
finishing labor hours #labor hours	100000$[$5*20000labor hours]
packaging #orders shipped	100000$[$170000/1700]*1000orders
Total cost allocated to cheap	$1,640,000
unit produced	10000
per unit cost [1,640,000/10000]	164$ per unit