An intern suggested that the company use activity-based costing to cost its prod

Question

An intern suggested that the company use activity-based costing to cost its products. A team was formed to investigate this idea. It came back with the recommendation that four activity cost pools be used. These cost pools and their associated activities are listed as follows: Expected Activity Activity Cost Pool and Activity Measure Estimated Overhead Cost Flexible Rigid Total Purchase orders (number of orders) $ 20,000 100 300 400 Rework requests (number of requests) 10,000 60 140 200 Product testing (number of tests) 210,000 900 1,200 2,100 Machine related (machine-hours) 360,000 1,500 2,500 4,000 $ 600,000 Compute the activity rate for each of the activity cost pools. 3. Using activity-based costing, do the following: a. Determine the total amount of overhead that would be assigned to each model for the year. b. Compute the unit product cost for one unit of each model. (Round your answers to 2 decimal places.)

Explanation / Answer

a. Total amount of overhead to be assigned to each model:

b. Without the unit direct material cost, direct labor cost, variable manufacturing overhead cost and the number of units of each model produced, unit product cost cannot be computed. These are not provided in the question posted.

Activity Total cost Assigned to Flexible Assigned to Rigid Purchase orders $ 20,000 $ 5,000 $ 15,000 Rework requests $ 10,000 $ 3,000 $ 7,000 Product testing $ 210,000 $ 90,000 $ 120,000 Machine related $ 360,000 $ 135,000 $ 225,000 Total overhead costs $ 600,000 $ 233,000 $ 367,000

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