Question

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.

Answer 1