Exercise 17-17 (Algo) Using activity-based costing to allocate overhead, compute product cost and gross profit LO P3Ice Cool produces two different models of air conditioners. The activities, costs, and cost drivers associated with the production processes follow. ProcessActivityBudgeted CostActivity Cost DriverBudgeted Activity UsageAssemblyMachining$ 311,800Machine hours (MH)7,400 Setups22,000Setups120 $ 333,800 FinishingInspecting$ 232,000Inspections740SupportPurchasing$ 132,000Purchase orders540 Additional production information concerning its two models follows. Units and ActivitiesModel XModel ZUnits produced2,2004,400Machine hours2,2005,200Setups4080Inspections480260Purchase orders360180 Per UnitModel XModel ZSelling price per unit$ 415$ 395Direct materials cost per unit155115Direct labor cost per unit1201351. Compute the activity rate for each activity using activity-based costing.2. Using activity-based costing, compute the overhead cost per unit for each model.3. Compute the total product cost per unit for each model.4. For each model, compute the gross profit per unit (selling price per unit minus product cost per unit).

Activity-based costing is used to distribute the overhead. This method is used to allocate the…

Answered: Ice Cool produces two different models…

Financial & Managerial Accounting

13th Edition

ISBN:9781285866307

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter26: Cost Allocation And Activity-Based Costing

Section: Chapter Questions

Problem 26.8EX: Identifying activity bases in an activity-based cost system Select Foods Inc. uses activity-based...

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Exercise 17-17 (Algo) Using activity-based costing to allocate overhead, compute product cost and gross profit LO P3

Ice Cool produces two different models of air conditioners. The activities, costs, and cost drivers associated with the production processes follow.

Process	Activity	Budgeted Cost	Activity Cost Driver	Budgeted Activity Usage
Assembly	Machining	$ 311,800	Machine hours (MH)	7,400
	Setups	22,000	Setups	120
		$ 333,800
Finishing	Inspecting	$ 232,000	Inspections	740
Support	Purchasing	$ 132,000	Purchase orders	540

Additional production information concerning its two models follows.

Units and Activities	Model X	Model Z
Units produced	2,200	4,400
Machine hours	2,200	5,200
Setups	40	80
Inspections	480	260
Purchase orders	360	180

Per Unit	Model X	Model Z
Selling price per unit	$ 415	$ 395
Direct materials cost per unit	155	115
Direct labor cost per unit	120	135

1. Compute the activity rate for each activity using activity-based costing.
2. Using activity-based costing, compute the overhead cost per unit for each model.
3. Compute the total product cost per unit for each model.
4. For each model, compute the gross profit per unit (selling price per unit minus product cost per unit).

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