Question

HiTech Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below.

Activity	Cost	Cost Driver
Material handling	$269,000	Number of parts
Material insertion	3,390,000	Number of parts
Automated machinery	872,000	Machine hours
Finishing	256,000	Direct labor hours
Packaging	256,000	Orders shipped
Total	$5,043,000

The following information pertains to the three product lines for next year:
  

	Economy	Standard	Deluxe
Units to be produced	10,000	4,100	2,550
Orders to be shipped	1,720	710	200
Number of parts per unit	10	15	25
Machine hours per unit	1	3	6
Labor hours per unit	3	3	3

1.) What is HiTech's pool rate for the material-handling activity closest to?

$2.69 per part.

$10.77 per part.

$1.19 per part.

$5.39 per labor hour.

A rate other than those listed above.

2.) What is HiTech's pool rate for the automated machinery activity closest to?

A rate other than those listed above.

$56.00 per machine hour.

$50.42 per unit.

$23.69 per labor hour.

$23.19 per machine hour.

3.) What is HiTech's pool rate for the finishing activity closest to?

A rate other than those listed above.

$7.63 per unit.

$5.13 per machine hour.

$5.13 per labor hour.

$5.13 per unit.

Answer 1

Activity Cost Cost Driver(See W.N) Cost per Cost Driver

Material Handling 2,69,000            Number of Parts = 2,25,250                        = 1.19 per Part

Material Insertion 33,90,000          Number of Parts = 2,25,250                       = 15.05 per Part

Automated machinery    8,72,000 Machine Hours =   37,600                           = 23.19 per Machine Hour

Finishing 2,56,000 Direct Labor Hours = 49,950                       = 5.125 per Direct Labor Hr

Packaging 2,56,000 Orders Shipped = 2630                               = 97.34 per Order Shipped

W.N

Number of Parts = 10000*10+4100*15+2550*25 = 2,25,250

Machine Hours = 10000*1 + 4100*3 + 2550*6 = 37,600

Direct Labor Hours = 10000*3 + 4100*3 + 2550*3 = 49,950

Orders Shipped = 1720+ 710 + 200 = 2630

1.) Pool Rate for Material Handling Activity = 1.19 per Part

2.) Pool Rate for Automated Machinery Activity = 23.19 per Machine Hour

3.) Pool Rate for Finishing Activity= 5.125 (Closes to 5.13 per Direct Labor Hour)