FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is as follows:
| Activity |
Activity-Base |
x | Activity Rate per Hour |
= |
Activity Cost |
| Fabrication | 0.75 | $24.00 | $18.00 | ||
| Assembly | 1.50 | 20.00 | 30.00 | ||
| Inspection | 0.30 | 25.00 | 7.50 | ||
| Moving | 0.25 | 12.00 | 3.00 | ||
| Total activity cost per unit | $58.50 |
These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during assembly, thus reducing assembly time to 1.10 hours per unit.
a. Determine the revised activity-based cost per unit under the new fabrication plan.
b. Does this plan reduce the activity cost per unit of the oven?
Please show your work.
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