LO 5-3 Exercise 5-10A Computing product cost with given activity allocation rate
ID: 2568132 • Letter: L
Question
LO 5-3 Exercise 5-10A Computing product cost with given activity allocation rates Wu Manufacturing produces two keyboards, one for laptop computers and the other for desktop com- puters. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the keyboards Activity Allocation Base Allocation Rate Materials receiving& handling Production setup Assembly Quality inspection Packing and shipping Cost of material Number of setups Number of parts Inspection time Number of orders 2% of material cost $50.00 per setup $2.50 per part $0.75 per minute $10.00 per order Activity measures for the two kinds of keyboards follow: Labor Cost Inspection Time Number of Setups 30 12 Material Cost Number of Parts Number of Orders Laptops Desktops $3,000 2,400 42 24 3,600 min 2,500 min 65 20 575 Required a. Compute the cost per unit of laptop and desktop keyboards, assuming that Wu made 500 units of each type of keyboard. Round your computation to two decimal points Explain why laptop keyboards cost more to make even though they have less material cost and are smaller than desktop keyboards b.Explanation / Answer
ReqA. LAPTOPS DESKTOPS Number of Setups 30 12 Number of parts 42 24 Inspection Time 3600 2500 Number of orders 65 20 Direct Material 3000 2400 Direct labour 630 575 Overheads cost: Material receiving and handling@2% of material) 60 48 Production setup(@50 per setup) 1500 600 Assembly (@2.50 per part) 105 60 Quality Inspection ($0.75 per min) 270 187.5 Packing and Shipping(@ 10 per order) 650 200 Total Cost of Production 6215 4070.5 Units of Production 500 500 Cost per unit of Product 12.43 8.141 ReqB. Laptops have more cost inspite of low material cost due to the fact that activities associated with the production are consumed greatly in the production of laptops than in the production of desktops. Therefore, overheads cost of activities associated with laptop production is higher, resulting in the increase cost of production of laptops.
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