Compute cost driver rates for each of the activities
Course:- Managerial Accounting
Reference No.:- EM13339171

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Performance Drinks, LLC is owned by Dave N. Port. Performance Drinks produces a variety of sports centered drinks. They began operations in 1993 shortly after Mr. Port graduated with his M.B.A.

That report is following:


Basic Hydration Intensity Post Workout Total

Sales $125,000 $120,000 $74,250 $93,000 $412,250

Direct Materials $40,000 $50,000 $31,000 $33,000 $154,000
Direct Labor $25,000 $20,000 $10,000 $18,000 $73,000
Fringe Benefits on Direct Labor $11,250.00 $9,000.00 $4,500.00 $8,100.00 $32,850.00
Manufacturing Overhead $43,750.00 $35,000.00 $17,500.00 $31,500.00 $127,750.00
TOTAL COST $120,000.00 $114,000.00 $63,000.00 $90,600.00 $387,600.00
GROSS MARGIN $5,000.00 $6,000.00 $11,250.00 $2,400.00 $24,650.00
GROSS MARGIN RATIO 4.00% 5.00% 15.15% 2.58% 5.98%

Annual Volume: 100,000 80,000 45,000 60,000 285,000
Unit Price: $1.25 $1.50 $1.65 $1.55 $1.45
Unit Cost: $1.200 $1.425 $1.400 $1.510 $1.360

Since your primary area of focus is on the indirect costs you compile the following report which further details your overhead charges:


Monthly Charge
Indirect Labor $55,000.00
Fringe Benefits on Indirect Labor $24,750.00
Utilities $5,000.00
Processing Equipment - Depreciation $10,000.00
Preventative Maintenance $10,000.00
Information Technology $23,000.00
Total $127,750.00

Overhead Activities:

Using traditional costing methods, which support your absorption costing system, you base overhead allocation on direct labor cost. Furthermore, "fringe benefits" are a function of direct labor cost.

As a result of your many meetings to discuss company overhead you determine that the majority of your indirect costs are related to four primary activities. Those activities are equipment set-ups, production runs, production management and machine-hour capacity. "Production Management" refers to a number of items that are correlated to the number of products the company produces. Ultimately you determine that your key activities have the following usage patterns, as they pertain to the monthly overhead costs:

Monthly Equipment production number Machine

charge set ups rungs of products hour capacity
Indirect labor 55,000 20% 45% 15% 20%
Fringe Benefits on indirect labor 24750 20% 45% 15% 20%
Utilities 5,000 5% 65% 0% 30%
Processing Equipment- Depreciation 10,000 0% 100% 0% 0%
Preventative Maintenance 10,000 40% 30% 0% 30%
Information technology 23,000 10% 15% 70% 5%

Upon reviewing budget data from the last budget cycle you discover that the monthly number of set-ups was estimated to be 85. The number of production runs was estimated to be 250. That monthly machine-hour capacity is presently at 20,000 machine-hours. Lastly, Performance Drinks produces a total of four products.

After talking with the Plant Manger you create the following usage data relative to products and activities:

Activity Basic Hydration Intensity Post workout
set ups 15 15 50 5
Production runs 125 65 35 25
production Mgt 1 1 1 1
MACHINE HOUR CAPACITY 9000 4000 3000 4000


1. Based on all of the date provided, compute the cost driver rates for each of the four activities.

2. Compute the per unit product costs for each of the four products. Compute this cost using ABC allocation for overhead. Show the computation for each per unit product cost in detail.

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