Question

Franklin Manufacturing produces two keyboards, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the keyboards.

Activity	Allocation Base	Allocation Rate
Materials receiving & handling	Cost of material	1 % of material cost
Production setup	Number of setups	$	113.00	per setup
Assembly	Number of parts	$	5.00	per part
Quality inspection	Inspection time	$	1.20	per minute
Packing and shipping	Number of orders	$	11.00	per order

Activity measures for the two kinds of keyboards follow:

	Labor Cost			Material Cost			Number of Setups			Number of Parts			Inspection Time			Number of Orders
Laptops	$	1,310		$	5,700			27			50			7,100	min.		62
Desktops		1,200			7,100			13			27			5,100	min.		15

Required

Compute the cost per unit of laptop and desktop keyboards, assuming that Franklin made 290 units of each type of keyboard. (Round your answers to 2 decimal places.)

Answer 1

Solution

Franklin Manufacturing

Computation of the cost per unit of laptop and desktop keyboards, assuming 290 units of each type of keyboard:

	Laptops	Desktops
Direct material cost	$5,700	$7,100
Direct labor	$1,310	$1,200
overhead cost	$12,560	$7,960
Total cost	$19,570	$16,260
Number of units	290	290
cost per unit	$67.48	$56.10

Workings:

Laptops -

Step1:

Determination of total overhead cost for 290 laptops

Laptops
Activity	Allocation base	Usage	Allocation Rate	Cost
Material handling	material cost		1% of material cost	$57
Production setup	number of setups	27	$113 per setup	$3,051
Assembly	number of parts	50	$5 per part	$250
Quality Inspection	Inspection time	7,100 minutes	$1.20 per minute	$8,520
Packing and shipping	number of orders	62	$11 per order	$682
Total overhead cost				$12,560

Desktops –

Step 1:

Determination of overhead cost –

Desktops
Activity	Allocation base	Usage	Allocation Rate	Cost
Material handling	material cost		1% of material cost	$71
Production setup	number of setups	13	$113 per setup	$1,469
Assembly	number of parts	27	$5 per part	$135
Quality Inspection	Inspection time	5,100 minutes	$1.20 per minute	$6,120
Packing and shipping	number of orders	15	$11 per order	$165
Total overhead cost				$7,960