FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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 bases for these activities:

Activity Activity Cost Activity Base
Production setup $ 63,000   Number of setups
Procurement 118,750   Number of purchase orders (PO)
Quality control 187,500   Number of inspections
Materials management 172,000   Number of components
Total $541,250    

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

  Setups Purchase
    Orders
Inspections Components Unit Volume
Custom 350   950   1,900   450   1,000  
Standard 100   300   600   350   1,000  
Total 450   1,250   2,500   800   2,000  

a.  Determine an activity rate for each activity.

Activity Rates Production Setup Procurement Quality Control Materials Management
Activity cost $fill in the blank 1   $fill in the blank 2   $fill in the blank 3   $fill in the blank 4  
÷ Activity base fill in the blank 5   fill in the blank 6   fill in the blank 7   fill in the blank 8  
Activity rate $fill in the blank 9 /setup $fill in the blank 10 /PO $fill in the blank 11 /inspection $fill in the blank 12 /component

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

  Custom Standard
Setups Total $fill in the blank 13   $fill in the blank 14  
Purchase Orders Total fill in the blank 15   fill in the blank 16  
Inspections Total fill in the blank 17   fill in the blank 18  
Components Total fill in the blank 19   fill in the blank 20  
Total product cost $fill in the blank 21   $fill in the blank 22  
Unit volume fill in the blank 23   fill in the blank 24  
Unit cost $fill in the blank 25   $fill in the blank 26  

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. Round your answer to the nearest cent.
$fill in the blank 27per unit

d.  The custom product will consume   materials management activities than will the standard product.

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