Question

Product Costs using Activity Rates

Hercules 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	$27	per machine hour
Assembly	$9	per direct labor hour
Setup	$58	per setup
Inspecting	$20	per inspection
Production scheduling	$10	per production order
Purchasing	$7	per purchase order

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

Activity Base	Elliptical Machines		Treadmill
Machine hours	1,680		991
Direct labor hours	494		193
Setups	61		19
Inspections	654		392
Production orders	78		16
Purchase orders	173		106
Units produced	288		193

Use the activity rate and usage information to determine 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	$	$

Answer 1

Ans.		Total Activity Cost	Activity cost per unit
	Elliptical machines	$68,415	$237.55
	Treadmill	$38,338	$198.64
	*WORKING NOTES :
	*Calculations for Total Activity cost :
	Activity cost assigned = Actual activity * Activity rates
			Cost drivers by product	Overhead cost assigned
	Activity cost pools	Activity rate   (a)	Elliptical machines (1)	Treadmill (2)	Elliptical machines (a*1)	Treadmill (a*2)
	Fabrication	$27.00	1680	991	$45,360	$26,757
	Assembly	$9.00	494	193	$4,446	$1,737
	Setup	$58.00	61	19	$3,538	$1,102
	Inspection	$20.00	654	392	$13,080	$7,840
	Production scheduling	$10.00	78	16	$780	$160
	Purchasing	$7.00	173	106	$1,211	$742
	Total Activity Cost				$68,415	$38,338
	*Calculations for Activity cost per unit :
	Activity cost per unit = Total activity cost / Number of units
		Elliptical machines	Treadmill
	Total Activity Cost	$68,415	$38,338
	(/) Units produced	288	193
	Activity cost per unit	$237.55	$198.64