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Activity-based costing Pure Cane Sugar Company manufactures three products (while sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows: Activity Activity Costs Production $247,500 Setup 48,000 Inspection 12,500 Shipping 69,300 Customer service 27,600 Total $404,900 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Inspection Number of inspections Shipping Number of customer orders Customer service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from corporate records as follows: Machine Hours Number of Setups Number of Inspections Number of Customer Orders Customer Service Requests Units White sugar 2,000 50 100 410 25 8,000 Brown sugar 1,250 70 160 1,100 200 5,000 Powdered sugar 1,250 80 240 800 120 5,000 Total 4,500 200 500 2,310 345 18.000 Each product requires 0.25 machine hour per unit. Instructions 1. Determine the activity rate for each activity. 2. Determine the total and per-unit activity costs for all three products. 3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 25, Problem 25.7APR
Textbook Problem

Activity-based costing

Pure Cane Sugar Company manufactures three products (while sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

Activity Activity Costs
Production $247,500
Setup 48,000
Inspection 12,500
Shipping 69,300
Customer service 27,600
Total $404,900

The activity bases identified for each activity are as follows:

Activity Activity Base
Production Machine hours
Setup Number of setups
Inspection Number of inspections
Shipping Number of customer orders
Customer service Number of customer service requests

The activity-base usage quantities and units produced for the three products were determined from corporate records as follows:

 

Machine

Hours

Number of Setups Number of Inspections Number of Customer Orders

Customer

Service

Requests

Units
White sugar 2,000 50 100 410 25 8,000
Brown sugar 1,250 70 160 1,100 200 5,000
Powdered sugar 1,250 80 240 800 120 5,000
Total 4,500 200 500 2,310 345 18.000

Each product requires 0.25 machine hour per unit.

Instructions

1. Determine the activity rate for each activity.

2. Determine the total and per-unit activity costs for all three products.

3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?

Expert Solution

a)

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 Determine: The activity rate for each activity of Company PCS.

Explanation of Solution

Calculate the activity rate for each activity of Company PCS.

Activity Activity Cost Activity-Base Activity Rate
Production $247,500 4,500 mh $55
Setup $48,000 200 setups $240
Inspectio...
Expert Solution

b)

To determine
The total and per unit activity cost for each product of Company PCS.

Expert Solution

c)

To determine

To Explain: The reason for the difference in activity unit cost for each product of Company PCS, as they require the same machine time per unit.

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Chapter 25 Solutions

Accounting
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