Question

A.

Product Costs using Activity Rates

Atlas Enterprises Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

Activity	Activity Rate
Fabrication	$22	per machine hour
Assembly	$8	per direct labor hour
Setup	$49	per setup
Inspecting	$29	per inspection
Production scheduling	$9	per production order
Purchasing	$6	per purchase order

The activity-base usage quantities and units produced for each product were as follows:

Activity Base	Elliptical Machines		Treadmill
Machine hours	1,824		1,076
Direct labor hours	380		148
Setups	49		15
Inspections	606		364
Production orders	71		14
Purchase orders	186		113
Units produced	267		179

Use the activity rate and usage information to calculate the total activity cost and activity cost per unit for each product. If required, round the per unit answers to the nearest cent.

	Total Activity Cost	Activity Cost Per Unit
Elliptical Machines	$	$
Treadmill	$	$

B.

High-Low Method for a Service Company

Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved.

	Transportation Costs		Gross-Ton Miles
January	$1,053,200		312,000
February	1,174,300		349,000
March	829,900		226,000
April	1,125,900		338,000
May	944,300		272,000
June	1,210,600		367,000

Determine the variable cost per gross-ton mile and the total fixed cost.

Variable cost (Round to two decimal places.)	$ per gross-ton mile
Total fixed cost	$

Answer 1

Requirement A:

Computation of Total Activity Cost and Activity Cost per unit:

Particulars	Activity Rate (A)	Activity Base (B)	Elliptical Machines (A*B)	Activity Base ©	Treadmill (A*C)
Fabrication	22	1824	40128	1076	23672
Assembly	8	380	3040	148	1184
Setup	49	49	2401	15	735
Inspecting	29	606	17574	364	10556
Production Scheduling	9	71	639	14	126
Purchasing	6	186	1116	113	678
Total Activity Cost			64898		36951
Units Produced			267		179
Activity Cost per unit			243.0637		206.4302
(Total Activity Cost / Units produced)

	Total Activity Cost	Activity Cost per unit
Elliptical Machines	$64,898	$36,951
Treadmill	$243.06	$206.43

Requirement B:

At high level activity,

x1 = Number of Gross ton miles = 367000

y1 = Total Transportation Cost = $1210600

At low level activity,

x2 = Number of gross ton miles = 226000

y2 = Total Transportation Cost = $829900

Variable Cost per gross ton mile

= (y1-y2) / (x1-x2)

= (1210600-829900) / (367000-226000)

= 380700 / 141000

= $2.7 per gross ton mile

Total Fixed Cost = Total Transportation Cost - Total Variable Cost

At high level activity,

Total transportation Cost = $1210600

Total Variable Cost = Variable Cost per gross ton mile * Total Gross ton miles

= $2.7 * 367000

= $990900

Total Fixed Cost = $1210600 - $990900 = $219700

At Low level activity,

Total transportation Cost = $829900

Total Variable Cost = Variable Cost per gross ton mile * Total Gross ton miles

= $2.7 * 226000

= $610200

Total Fixed Cost = $829900 - $610200 = $219700

Variable Cost = $2.7 per gross ton mile

Total Fixed Cost = $219700