Activity-based costing Zeus Industries manufactures two types of electrical power units, custom and standard, which involve four factory overhead activities—production setup, procurement, quality control, and materials management. An activity analysis of the overhead revealed the following estimated activity costs and activity hases for these activities: Activity Activity Cost Activity Base Production setup $ 44,000 Number of setups Procurement 13,500 Number of purchase orders {PO) Quality control 97,500 Number of inspections Materials management 84,000 Number of components Total 5239,000 The activity-base usage quantities for each product are as follows: Setups Purchase Orders Inspections Components Unit Volume Custom 290 760 1.200 500 2.000 Standard 110 140 300 200 2,000 Total 400 900 1.500 700 4,000 a. Determine an activity rate for each activity. b. Assign activity costs to each product and determine the unit activity cost, using the activity rates from part (a). c. Assume that each product required one direct labor hour per unit. Determine the per-unit cost if factory overhead is allocated on the basis of direct labor hours. d. Explain why the answers in parts (b) and (c) are different.

BuyFind

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615
BuyFind

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615

Solutions

Chapter
Section
Chapter 25, Problem 25.24EX
Textbook Problem

Activity-based costing

Zeus Industries manufactures two types of electrical power units, custom and standard, which involve four factory overhead activities—production setup, procurement, quality control, and materials management. An activity analysis of the overhead revealed the following estimated activity costs and activity hases for these activities:

Activity Activity Cost Activity Base
Production setup $ 44,000 Number of setups
Procurement 13,500 Number of purchase orders {PO)
Quality control 97,500 Number of inspections
Materials management 84,000 Number of components
Total 5239,000  

The activity-base usage quantities for each product are as follows:

  Setups Purchase Orders Inspections Components Unit Volume
Custom 290 760 1.200 500 2.000
Standard 110 140 300 200 2,000
Total 400 900 1.500 700 4,000

a. Determine an activity rate for each activity.

b. Assign activity costs to each product and determine the unit activity cost, using the activity rates from part (a).

c. Assume that each product required one direct labor hour per unit. Determine the per-unit cost if factory overhead is allocated on the basis of direct labor hours.

d. Explain why the answers in parts (b) and (c) are different.

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Chapter 25 Solutions

Accounting (Text Only)
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