Activity-based product costing
Alabama Paper Company manufactures three products (computer paper, newsprint, and specialty paper) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:
Activity Activity Cost Pool Production $451,400 Setup 263,200 Moving 72,000 Shipping 152,000 Product Engineering 92,400 Total $1,031,000
The activity bases identified for each activity are as follows:
- Activity* *Activity Base* Production Machine hours Setup Number of setups Moving Number of moves Shipping Number of customer orders Product Engineering Number of test runs
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
- Machine Hours* *Number of Setups* *Number of Moves* *Number of Customer Orders* *Number of Test Runs* *Units* Computer Paper 3,260 180 180 760 70 8,150 Newsprint 2,070 270 270 2,090 440 5,175 Specialty Paper 2,070 250 450 950 190 5,175 Total 7,400 700 900 3,800 700 18,500
Each product requires 0.9 machine hour per unit.
If required, round all per unit amounts to the nearest cent.
- 1.* Determine the activity rate for each activity.
Production $ per machine hour Setup $ per setup Moving $ per move Shipping $ per cust. ord. Product Engineering $ per test run
- 2.* Determine the total and per-unit activity cost for all three products. Round per unit answers to the nearest cent.
- Total Activity Cost* *Activity Cost per Unit* Computer Paper $ $ Newsprint $ $ Specialty Paper $ $
- 3.* Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?
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