Activity Based Costing. RSS, Inc. produces two products; the R-Audio tabletop ra

Question

Activity Based Costing. RSS, Inc. produces two products; the R-Audio tabletop radio/cd player, and the R-Man MP3 Player. The R-Audio product is a high volume standard unit. The R-Man is made in smaller batches, with frequent changes in design and features to meet market demand. RSS’s traditional costing system uses direct labor hours to allocate overhead to the products. Budgeted and actual direct labor hours were identical for the year. The company is interested to find out how the product costs would change if they used an activity-based system. Consider the following: Total Overhead: $900,000 Labor Hours: R-Audio 60,000 R-Man 30,000 Units Produced: R-Audio 60,000 R-Man 45,000 Direct Material Cost R-Audio $1,200,000 R-Man $ 900,000 Total Labor Cost $ 810,000 Activity-Based Information:

                                        Cost         R-Audio       R-Man

Unit Level (# of units)      $200,000       60,000        45,000

Batch (# of setups)         $400,000           100             300

Product (engineer hours) $200,000         1,000          3,000

Facility (square feet)       $100,000        25,000        25,000

Total                                $900,000

The current selling price for R-Audio is $46.80, and R-Man’s is $40.85

Compute the unit cost and gross margin for each product using the activity-based system.

Explanation / Answer

Cost R-Audio R-Man Total actvity Acvity rate Unit Level (# of units) 2,00,000 60,000 45,000 1,05,000 1.90 Batch (# of setups) 4,00,000 100 300 400 1000.00 Product (engineer hours) 2,00,000 1,000 3,000 4,000 50.00 Facility (square feet) 1,00,000 25,000 25,000 50,000 2.000 Total 9,00,000 R-Audio Acvity rate Amount Unit Level (# of units) 60,000 1.90 114000 Batch (# of setups) 100 1000.00 100000 Product (engineer hours) 1,000 50.00 50000 Facility (square feet) 25,000 2.00 50000 Total 314000 R-Man Acvity rate Amount Unit Level (# of units) 45,000 1.90 86000 Batch (# of setups) 300 1000.00 300000 Product (engineer hours) 3,000 50.00 150000 Facility (square feet) 25,000 2.00 50000 Total 586000 Unit Produced 60000 45000 Per Unit Cost R-Audio R-Man Total R-Audio R-Man Direct material 1200000 900000 2100000 20 20 Direct labor 540000 270000 810000 9 6 Overhead Cost ABC 314000 586000 900000 5.23 13.02 Total product cost 2054000 1756000 34.23 39.02 R-Audio R-Man selling price 46.8 40.85 Total product cost 34.23 39.02 Margin 12.57 1.83

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