Activity-Based Product Costing Sweet Sugar Company manufactures three products (
ID: 2401987 • Letter: A
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 55,000 5,000 Customer service The activity bases identified for each activity are as follows: Setup Oustomer service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows Service Units ,980 90 4,700 80 4,675 3,600 300 16,7S Each product requires 0.9 machine hour per unit. Required If required, round all per unit amounts to the nearest cent. 1. Determine the activity rate for each activity per machine hour Shipping per cust, ord 2. Determine the total and per-unit activity cost for all three products Powdered sugar 3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit? The unit costs are different because the productsExplanation / Answer
1.Activity rate = Total Cost/Total no. Of Activities
Production = 375,200/6700 = 56 per machine hour
Setup = 255,000/600 = 425 per set up
Inspection = 75,000/1000 = 75 per inspection
Shipping = 122,400/3600 = 34 per customer order
Customer Service = 39000/300 = 130 per customer service request
2. Cost of Products:
White Sugar
Brown Sugar
Powdered Sugar
Production
165200
105280
104720
Setup
63750
97750
93500
Inspection
15000
22500
37500
Shipping
24480
67320
30600
Customer Service
3900
24700
10400
Total Cost
272330
317550
276720
No. Of units
7375
4700
4675
Cost per Unit
36.93
67.56
59.19
3.Costs are different because the products consume many activities in ratios different from machine hour ratio. All costs are divided on the basis of respective drivers, hence the costs are different.
White Sugar
Brown Sugar
Powdered Sugar
Production
165200
105280
104720
Setup
63750
97750
93500
Inspection
15000
22500
37500
Shipping
24480
67320
30600
Customer Service
3900
24700
10400
Total Cost
272330
317550
276720
No. Of units
7375
4700
4675
Cost per Unit
36.93
67.56
59.19
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