Activity-Based Product Costing Sweet Sugar Company manufactures three products (

Question

Activity-Based Product Costing Sweet Sugar Company manufactures three products (white 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 Production Setup Inspection Shipping Customer service Budgeted Activity Cost $375,200 255,000 75,000 122,400 39,000 $866,600 Total The activity bases identified for each activity are as follows: Activity Production Setup Inspection Shipping Customer service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from Activity Base Machine hours Number of setups Number of inspections Number of customer orders

Explanation / Answer

Answer to Part 1.

Production cost per Machine Hour = 375,200 / 6,700
Production cost per Machine Hour = $56 per Machine Hour

Setup cost per Setup = 255,000 / 600
Setup cost per Setup = $425 per Setup

Inspection cost per Inspection = 75,000 / 1,000
Inspection cost per Inspection = $75 per Inspection

Shipping cost per Customer Orders = 122,400 / 3,600
Shipping cost per Customer Orders = $34 per Customer Orders

Customer Service cost per Customer Service requests = 39,000 / 300
Customer Service cost per Customer Service requests = $130 per Service requests

Answer to Part 2.

White Sugar:
White Sugar Activity Cost = ($56 * 2,950) + ($425 * 150) + ($75 * 200) + ($34 * 720) + ($130 * 30)
White Sugar Activity Cost = $165,200 + $63,750 + $15,000 + $24,480 + $3,900
White Sugar Activity Cost = $272,330

Activity Cost per Unit = 272,330 / 7,375
Activity Cost per Unit = $36.93

Brown Sugar:
Brown Sugar Activity Cost = ($56 * 1,880) + ($425 * 230) + ($75 * 300) + ($34 * 1,980) + ($130 * 190)
Brown Sugar Activity Cost = $105,280 + $97,750 + $22,500 + $67,320 + $24,700
Brown Sugar Activity Cost = $317,550

Activity Cost per Unit = 317,550 / 4,700
Activity Cost per Unit = $67.563

Powdered Sugar:
Powdered Sugar Activity Cost = ($56 * 1,870) + ($425 * 220) + ($75 * 500) + ($34 * 900) + ($130 * 80)
Powdered Sugar Activity Cost = $104,720 + $93,500 + $37,500 + $30,600 + $10,400
Powdered Sugar Activity Cost = $276,720

Activity Cost per Unit = 276,720 / 4,675
Activity Cost per Unit = $59.19

Answer to Part 3.

The unit costs are different because the products consume many activities in ratios different from the other products.

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