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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Activity-based costing

CardioTrainer Equipment Company manufactures stationary bicycles and treadmills. The products are produced in the Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

Activity

Activity Rate
Fabrication $22 per machine hour (mh)
Assembly $12 per direct labor hour (dlh)
Setup $40 per setup
Inspecting $18 per inspection
Production scheduling $8 per production order
Purchasing $5 per purchase order

The activity-base usage quantities and units produced for each product were as follows:

  Stationary Bicycle Treadmill
Machine hours 1,680 1,070
Direct labor hours 243 131
Setups 45 20
Inspections 158 94
Production orders 60 32
Purchase orders 240 98
Units produced 500 350

Use the activity rate and usage information to compute the total activity costs and the activity costs per unit for each product.

To determine

Activity-Based Costing: Activity-Based Costing refers to the allocation of the factory overheads when there are numerous products and processes. Activity-based costing aims at assigning the costs among the products in a proportionate way.

To Compute: The total activity costs and activity costs per unit for each product.

Explanation

Prepare the Activity-based costing analysis for Company CTE.

Stationary Bicycle Treadmill
Activity Activity-Base Usage Activity Rate Activity Cost Activity-Base Usage Activity Rate Activity Cost
Fabrication 1,680 mh $22 $36,960 1,070 mh $22 $23,540
Assembly 243 dlh $12 $2,916 131 dlh $12 $1,572
Setup 45 setups $40 $1,800 20 setups $40 $800
Inspection 158 inspection $18 $2,844 94 ins...

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