Mahinahon Company would like to institute an activity-based costing system to price products. The company's Purchasing Department incurs costs of P550,000 per year and has six employees. Purchasing has determined the three major activities that occur during the year. Activity Allocation Measure # of People Total Cost Issuing purchase orders # of purchase orders 1 P285,000 Reviewing receiving reports # of receiving reports 2 P190,000
Problem 1. Mahinahon Company would like to institute an activity-based costing system to price products. The company's Purchasing Department incurs costs of P550,000 per year and has six employees.
Purchasing has determined the three major activities that occur during the year.
|
Activity |
Allocation Measure |
# of People |
Total Cost |
|
Issuing purchase orders |
# of purchase orders |
1 |
P285,000 |
|
Reviewing receiving reports |
# of receiving reports |
2 |
P190,000 |
|
Making phone calls |
# of phone calls |
3 |
P220,000 |
During the year, 50,000 phone calls were made in the department; 15,000 purchase orders were issued;
and 10,000 shipments were received. Product A required 200 phone calls, 150 receiving reports, and
50 purchase orders. Product B required 350 phone calls, 400 receiving reports, and 100 purchase
orders.
- 1Determine the amount of purchasing department cost that should be assigned to each
of these products.
1.2. Determine purchasing department cost per unit if 1,500 units of Product A and 3,000
units of Product B were manufactured during the year.
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