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Activity-Based Costing Hercules Industries manufactures two types of electrical power units, custom and standard, which involve...

Activity-Based Costing

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

Activity     Cost Activity Base
Production setup $ 82,500 Number of setups
Procurement 137,500 Number of purchase orders (PO)
Quality control 150,000 Number of inspections
Materials management 205,000 Number of components
Total $575,000

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

    Setups     Purchase
    Orders
    Inspections     Components     Unit Volume
Custom 450 1,100 2,200 550 1,000
Standard 100 150 300 450 1,000
Total 550 1,250 2,500 1,000 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 SelectmorelessItem 28 materials management activities than will the standard product.

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