Question

Activity Rates and Activity-Based Product Costing

Hammer Company produces a variety of electronic equipment. One of its plants produces two laser printers: the deluxe and the regular. At the beginning of the year, the following data were prepared for this plant:

	Deluxe	Regular
Quantity	100,000	800,000
Selling price	$900	$750
Unit prime cost	$529	$483

In addition, the following information was provided so that overhead costs could be assigned to each product:

Activity Name	Activity Driver	Deluxe	Regular	Activity Cost
Setups	Number of setups	300	200	$2,150,000
Machining	Machine hours	100,000	300,000	60,000,000
Engineering	Engineering hours	50,000	100,000	13,500,000
Packing	Packing orders	100,000	400,000	100,000

Required:

1. Calculate the overhead rates for each activity. If required, carry your answers out to the nearest cent.

Setups	$ per setup
Machining	$ per machine hour
Engineering	$ per engineering hour
Packing	$ per packing order

2. Calculate the per-unit product cost for each product. Round your answers to the nearest whole dollar.

Deluxe	$per unit
Regular	$per unit

Answer 1

Solution 1:

Activity cost pool	Overhead costs	Cost Driver Quantity		Activity Rate
Setups	$21,50,000	500	Setups	$4,300.00
Machining	$6,00,00,000	400000	Machine hours	$150.00
Engineering	$1,35,00,000	150000	hours	$90.00
Packing	$1,00,000	500000	orders	$0.20

2.

		Deluxe	Regular
Activity	Activity Rate	Cost Driver	Overhead Allocated	Cost Driver	Overhead Allocated
Setups	$4,300.00	300	$12,90,000	200	$8,60,000
Moving Material	$150.00	100000	$1,50,00,000	300000	$4,50,00,000
Machining	$90.00	50000	$45,00,000	100000	$90,00,000
Inspection	$0.20	100000	$20,000	400000	$80,000
Total			$2,08,10,000		$5,49,40,000
/units			100000		800000
Overhead per unit			208.10		68.68

Computatioon of Total Units Cost
	Deluxe	Regular
Prime Cost	$529.00	$483.00
Overhead	$208.10	$68.68
Cost per unit	$737.10	$551.68