9 Activity-Based Costing Each product requires 0.25 machine hour per unit. Requi

ID: 2486250 • Letter: 9

Question

Activity-Based Costing

Each product requires 0.25 machine hour per unit.

Required:

1. Determine the activity rate for each activity.

2. Determine the total and per-unit activity costs for all three products. Round "Activity cost per unit" answers to two decimal places.

Sell or Process Further Zing Roast Coffee Company produces Columbian coffee in batches of 6,200 pounds. The standard quantity of materials required in the process is 6,200 pounds, which cost $5.00 per pound. Columbian coffee can be sold without further processing for $9.40 per pound. Columbian coffee can also be processed further to yield Decaf Columbian, which can be sold for $11.00 per pound. The processing into Decaf Columbian requires additional processing costs of $9,050 per batch. The additional processing will also cause a 6% loss of product due to evaporation. Prepare a differential analysis dated August 28, 2014, on whether to sell regular Columbian (Alternative 1) or process further into Decaf Columbian (Alternative 2).

Activity Rate Production $ /mh Setup $ /setup Inspection $ /insp. Shipping $ /cust. ord. Customer Service $ /req.

Explanation / Answer

Answer 1: Activity rate is calculated as follows:

Calculation

Activity Rate

Production

Production cost/Machine hours

=247500/4500

$ 55 /machine hours

Setup

Total setup costs/Number of set ups = 48000/200

$240 /setup

Inspection

Inspection cost/Number of inspection = 12500/500

$ 25 /Inspection

Shipping

Shipping cost/number of customer order = 69300/2310

$30/Customer order

Customer Service

Customer service cost/number of customer service requests

27600/345 = $80/Customer service request

Answer 2:

White Sugar

Brown Sugar

Powdered Sugar

Total activity cost

$138800

$138550

$127550

Activity cost per unit

$ 138800/8000 = $17.35

$ 138550/5000 = 27.71

$127550/5000= $25.51

Working notes:

White sugar

Brown sugar

Powdered sugar

Machine hours

2000

1250

Production cost(Machine hours * Activity rate per machine hours)

110000

68750

Number of set up

Set up cost(Number of set up * Activity rate per set up

12000

16800

19200

Number of inspection

100

160

240

Inspection cost(Number of inspection * Activity rate per inspection

2500

4000

6000

Number of customer orders

410

1100

800

Shipping cost( number of orders * Actvity rate per order

12300

33000

24000

Number of customer service requests

200

120

Customer service cost( Number of service request * Activity rate per service

2000

16000

9600

Total activity costCost(A+B+C+D+E)

138800

138550

127550

Number of units Produced = Machine hours/0.25

White sugar = 2000/0.25 = 8000

Brown sugar=1250/0.25 = 5000 units

Powdered sugar = 1250/0.25 = 5000 units

The above solution is only for question number 9. Please Note Question number 10 is not answered as it is a separate question. Please ask in a separate query.