Question

Cornerstone Exercise 4.5 (Algorithmic) Activity-Based Product Costing Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below. Basic Advanced Total Units produced 80,000 240,000 ------ Prime costs $6,720,000 $27,360,000 $34,080,000 Machine hours 80,000 400,000 480,000 Engineering hours 500 4,500 5,000 Receiving orders 200 600 800 Inspection hours 800 1,600 2,400 Overhead costs: Machining $7,200,000 Engineering 2,250,000 Receiving 192,000 Inspecting products 336,000 Required: 1. Calculate the four activity rates. Machining rate $ per machine hour Engineering rate $ per hour Receiving rate $ per order Inspecting rate $ per hour 2. Calculate the unit costs using activity rates. Round your answers to the nearest cent. Unit cost Basic $ per unit Advanced $ per unit Calculate the overhead cost per unit. Round your answers to the nearest cent. Overhead Cost Basic $ per unit Advanced $ per unit 3. What if consumption ratios instead of activity rates were used to assigned costs? Show the cost assignment for the inspection activity. Cost assignment Basic $ Advanced $

Answer 1

		Basic	Advanced	Total
Units produced		80,000	240,000	320,000
Prime costs		6720000	$27,360,000	$34,080,000
Machine hours		80,000	400,000	480,000
Engineering hours		500	4,500	5,000
Receiving orders		200	600	800
Inspection hours		800	1,600	2,400
Overhead costs:
Machining		$7,200,000
Engineering		2,250,000
Receiving		192,000
Inspecting products		336,000
Required:
ans 1 the four activity rates.
	Cost C	Activity A	Activity rate C/A
Machining rate	$7,200,000	480,000	$15	$ per machine hour
Engineering rate	$2,250,000	5,000	$450	$ per hour
Receiving rate	$192,000	800	$240	$ per order
Inspecting rate	$336,000	2,400	$140	$ per hour
Ans 2
	Unit cost
Basic	188.91	$ per unit
Advanced	120.60	$ per unit
WORKING
Basic
Prime costs	6720000
Machining cost (400000*15)	6000000
Engineering cost (4500*450)	2025000
Receiving cost (600*240)	144000
Inspecting cost (1600*140)	224000
	Total cost T	No. of units N	Unit cost T/N
	$15,113,000	80,000	188.91	$ per unit
Advanced			$ per unit
Prime costs	$27,360,000
Machining cost (80000*15)	1200000
Engineering cost (500*450)	225000
Receiving cost (200*240)	48000
Inspecting cost (800*140)	112000
	Total cost T	No. of units N	Unit cost T/N
	$28,945,000	240,000	120.60	$ per unit
ii)	Overhead Cost
Basic	104.91	$ per unit
Advanced	6.60	$ per unit
WORKING
Basic
Machining cost (400000*15)	6000000
Engineering cost (4500*450)	2025000
Receiving cost (600*240)	144000
Inspecting cost (1600*140)	224000
	Total cost T	No. of units N	Unit cost T/N
	$8,393,000	80,000	104.91	$ per unit
Advanced			$ per unit
Machining cost (80000*15)	1200000
Engineering cost (500*450)	225000
Receiving cost (200*240)	48000
Inspecting cost (800*140)	112000
	Total cost T	No. of units N	Unit cost T/N
	$1,585,000	240,000	6.60	$ per unit
ans 3
Consumption ratio
Basic	0.25
80/320
Advanced	0.75
240/320
Inspection cost
Basic 336000*.25	84000
Advanced 336000*.75	252000