Activity Cost Pools, Activity Rates, and Product Costs using Activity-Based CostingCaldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows:ActivityActivity Pool CostActivity Base Procurement $12,600 Number of purchase ordersScheduling 90,000 Number of production ordersMaterials handling 11,000 Number of movesProduct development 50,000 Number of engineering changesTotal cost $163,600   The estimated activity-base usage and unit information for two product lines was determined as follows: Number ofPurchase OrdersNumber ofProduction OrdersNumber ofMovesNumber ofEngineering Change OrdersUnitsOvens 400  800  300  80  1,000 Refrigerators 300  400  200  120  500  Totals 700  1,200  500  200  1,500  a.  Determine the activity rate for each activity cost pool.Procurement (per purchase order)$Scheduling (per production order)$Materials handling (per move)$Product development (per engineering change order)$b.  Determine the activity-based cost per unit of each product.Ovens$ per unitRefrigerators$ per unit

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Asked Mar 18, 2019
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Activity Cost Pools, Activity Rates, and Product Costs using Activity-Based Costing

Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows:

Activity Activity Pool Cost Activity Base  
Procurement   $12,600   Number of purchase orders
Scheduling   90,000   Number of production orders
Materials handling   11,000   Number of moves
Product development   50,000   Number of engineering changes
Total cost   $163,600    

 

The estimated activity-base usage and unit information for two product lines was determined as follows:

  Number of
Purchase Orders
Number of
Production Orders
Number of
Moves
Number of
Engineering Change Orders

Units
Ovens   400     800     300     80     1,000  
Refrigerators   300     400     200     120     500  
  Totals   700     1,200     500     200     1,500  

 

a.  Determine the activity rate for each activity cost pool.

Procurement (per purchase order) $
Scheduling (per production order) $
Materials handling (per move) $
Product development (per engineering change order) $

b.  Determine the activity-based cost per unit of each product.

Ovens $ per unit
Refrigerators $ per unit
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Expert Answer

Step 1

a) Compute the activity rate for each activity cost pool:

 

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Step 2

Therefore, activity rate for procurement, scheduling, material handling , and product development are $18, $75, $22, and $250 respectively.

Step 3

b) Compute the activity base cost per unit of e...

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