Required: 1. Determine the amount of the cost pool for each of the four activities. 2. Determine the activity-driver rates for assigning factory costs to the two products. 3. Determine the activity-based unit cost for each of the products.
EyeGuard Equipment Inc. (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines—the highest-quality product is called Safe-T, and a low-cost, value version is called Safe-V. Information on the factory conversion costs for EEI is as follows:
| Salaries | $ | 846,000 | |
| Supplies | 146,000 | ||
| Factory expense | 546,000 | ||
| $ | 1,538,000 | ||
EEI uses ABC to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging.
| Setup | Assembly | Inspecting and Finishing | Packaging | Total | |||||||||||
| Salaries | 20 | % | 60 | % | 15 | % | 5 | % | 100 | % | |||||
| Supplies | 25 | 60 | 15 | 100 | |||||||||||
| Factory expense | 90 | 10 | 100 | ||||||||||||
The activity cost drivers for the two products are summarized below.
| Activities | Activity Driver |
| Setup | Batch |
| Assembly | Units |
| Inspect and finishing | Finishing hours |
| Packaging | Packing hours |
| Safe-V | Safe-T | |||||
| Batches | 210 | 560 | ||||
| Units | 56,000 | 68,000 | ||||
| Finishing hours, per unit | 0.30 | 0.20 | ||||
| Packaging hours, per unit | 0.20 | 0.10 | ||||
| Materials per unit | $ | 4.00 | $ | 5 | ||
Required:
1. Determine the amount of the cost pool for each of the four activities.
2. Determine the activity-driver rates for assigning factory costs to the two products.
3. Determine the activity-based unit cost for each of the products.
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