EyeGuard Equipment Inc. (EEI) manufactures protective eyewear for use in commerc

Question

EyeGuard Equipment Inc. (EEI) manufactures protective eyewear for use in commercial and home applications. The product is also used by hunters, home woodworking hobbyists, and in other applications. The firm has two main product lines—the highest-quality product is called Safe-T, and a low-cost, value version is called Safe-V. Information on the factory conversion costs for EEI is as follows: Factory Costs Salaries $ 844,000 Supplies 144,000 Factory expense 544,000 $ 1,532,000 EEI uses ABC to determine the unit costs of its products. The firm uses resource consumption cost drivers based on rough estimates of the amount that each activity consumes, as shown below. EEI has four activities: job setup, assembly, inspecting and finishing, and packaging. Setup Assembly Inspecting and Finishing Packaging Total Salaries 15 % 55 % 20 % 10 % 100 % Supplies 20 60 20 100 Factory expense 80 20 100 The activity cost drivers for the two products are summarized below. Activities Activity Driver Setup Batch Assembly Units Inspect and finishing Finishing hours Packaging Packing hours Safe-V Safe-T Batches 190 540 Units 54,000 66,000 Finishing hours, per unit 0.20 0.30 Packaging hours, per unit 0.10 0.15 Materials per unit $ 3.50 $ 6 Required: 1. Determine the amount of the cost pool for each of the four activities. 2. Determine the activity-driver rates for assigning factory costs to the two products. 3. Determine the activity-based unit cost for each of the products.

Explanation / Answer

Solution 1:

Solution 2:

Solution 3:

Determination of amount of cost pool for each of four activities Particulars Total Cost Job Setup Assembly Inspecting and finishing Packaging % Amount % Amount % Amount % Amount Salaries $844,000.00 15% $126,600.00 55% $464,200.00 20% $168,800.00 10% $84,400.00 Supplies $144,000.00 20% $28,800.00 60% $86,400.00 20% $28,800.00 0% $0.00 Factory Expense $544,000.00 80% $435,200.00 20% $108,800.00 0% $0.00 0% $0.00 Total $1,532,000.00 $590,600.00 $659,400.00 $197,600.00 $84,400.00

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