Question

1. Activity-Based Costing

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

   Activity	Activity Cost		Activity Base
   Production setup	$ 60,750		Number of setups
   Procurement	136,500		Number of purchase orders (PO)
   Quality control	182,000		Number of inspections
   Materials management	180,000		Number of components
   Total	$559,250

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

   	Setups		Purchase     Orders		Inspections		Components		Unit Volume
   Custom	300		1,200		2,400		500		2,000
   Standard	150		100		200		400		2,000
   Total	450		1,300		2,600		900		4,000

   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

   • more
   • less
   materials management activities than will the standard product.

Answer 1