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Process activity analysis Lexter Company incurred an activity cost of $180,000 for inspecting 25,000 units of production. Management determined that the inspecting objectives could be met without inspecting every unit. Therefore, rather than inspecting 25,000 units of production, the inspection activity was limited to 40% of the production. Determine the inspection activity cost per unit on 25,000 units of total production both before and after the improvement.

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 27, Problem 27.5APE
Textbook Problem
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Process activity analysis

Lexter Company incurred an activity cost of $180,000 for inspecting 25,000 units of production. Management determined that the inspecting objectives could be met without inspecting every unit. Therefore, rather than inspecting 25,000 units of production, the inspection activity was limited to 40% of the production. Determine the inspection activity cost per unit on 25,000 units of total production both before and after the improvement.

To determine

Cost of Quality Report: Cost of quality report is a report which shows the costs involved in reducing the possible faults and improving the quality of the goods produced.

To Determine: The inspection activity cost of total production both before and after improvement.

Explanation of Solution

Calculate the inspection activity cost of total production before improvement.

Inspection Activity Cost = Activity CostNumber of Units$180,00025,000= $7.20 per unit

Hence, the inspection activity cost of total production before improvement is $7.20 per unit.

Calculate the revised inspection activity cost.

Revised inspection activity cost = Sample inspection ×Cost per unit(40%×25,000)×$7

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Chapter 27 Solutions

Financial & Managerial Accounting
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