Reference no: EM13378651

Gwinnett 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                     $ 495,000

Setup                                        225,000

Moving                             29,750

Shipping                         126,000

Product engineering                      150,000

Total                                 $1,025,750

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:

Number of

Machine       Number of           Number of                 Customer          Number of

Hours                  Setups                     Moves                  Orders          Test Runs          Units

 

Computer paper	900	130	290	440	90	1,000
Newsprint	1,125	60	130	135	20	1,250
Specialty paper	450	310	430	625	140	500
Total	2,475	500	850	1,200	250	2,750

 

Each product requires 0.9 machine hour per unit.

I nstiuctions

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?