Question

Activity-Based Product Costing

Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

Activity		Budgeted Activity Cost
Production			$427,000
Setup			187,000
Inspection			120,000
Shipping			131,200
Customer service			80,400
	Total		$945,600

The activity bases identified for each activity are as follows:

Activity	Activity Base
Production	Machine hours
Setup	Number of setups
Inspection	Number of inspections
Shipping	Number of customer orders
Customer service	Number of customer service requests

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

			Machine Hours		Number of Setups		Number of Inspections		Number of Customer Orders		Customer Service Requests		Units
White sugar			3,080		130		300		820		60		7,700
Brown sugar			1,960		190		450		2,260		380		4,900
Powdered sugar			1,960		180		750		1,020		160		4,900
	Total		7,000		500		1,500		4,100		600		17,500

Each product requires 0.9 machine hour per unit.

Required:

If required, round all per unit amounts to the nearest cent.

1. Determine the activity rate for each activity.

Production	$ per machine hour
Setup	$ per setup
Inspection	$ per move
Shipping	$ per cust. ord.
Customer service	$ per customer service request

2. Determine the total and per-unit activity cost for all three products.

	Total Activity Cost	Activity Cost Per Unit
White sugar	$	$
Brown sugar
Powdered sugar

3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?

The unit costs are different because the products consume many activities in ratios different from the  .

Answer 1