Activity Cost Pools, Activity Rates, and Product Costs using Activity-Based Cost

Question

Activity Cost Pools, Activity Rates, and Product Costs using Activity-Based Costing Caldwell Home Appliances Inc. is estimating the activity cost associated with producing ovens and refrigerators. The indirect labor can be traced into four separate activity pools, based on time records provided by the employees. The budgeted activity cost and activity-base information are provided as follows: Activity Pool Cost $12,600 90,000 11,000 50,000 $163,600 Activity Base Scheduling Materials handling Product development Total cost Number of purchase arders Number of production orders Number af moves Number of engineering changes The estimated activity-base usage and unit information for two product lines was determined from corporate records as follows: Number of Number of Number of Number of Purchase Orders Production Orders Moves Engineering Changes Units Ovens 400 80 1,000 Refrigerators 400 120 1,200 1,500 a. Determine the activity rate for each activity cost pool Procurement (per purchase order) Scheduling (per production order) Materials handling (per move) Product development (per engineering change) b. Determine the acdvity-based cost per unit of each product. per uni Refrigeratars per unit

Explanation / Answer

a) Determine activity rate :

Procurement = (12600/700) = 18 per purchase order

Scheduling = (90000/1200) = 75 per production order

Material handling = (11000/500) = 22 per moves

Product development = (50000/200) = 250 per engineering changes

b) Determine cost per unit :

Ovens Refrigerators Procurement 7200 5400 Scheduling 60000 30000 Material handling 6600 4400 Product development 20000 30000 Total cost 93800 69800 Units 1000 500 Cost per unit 93.80 139.60

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