Reference no: EM132690706
Problem - 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 $437,400
Setup 176,000
Moving 31,200
Shipping 105,300
Product engineering 127,500
Total $877,400
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
|
900
|
120
|
270
|
440
|
80
|
1,000
|
|
Newsprint
|
1,080
|
50
|
110
|
140
|
25
|
1,200
|
|
Specialty paper
|
450
|
270
|
400
|
590
|
150
|
500
|
|
Total
|
2,430
|
440
|
780
|
1,170
|
255
|
2,700
|
Each product requires 0.9 machine hour per unit.
Instructions -
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products.
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?