Cornerstone Exercise 4.5 (Algorithmic) Activity-Based Product Costing Roberts Co
ID: 2536477 • Letter: C
Question
Cornerstone Exercise 4.5 (Algorithmic)
Activity-Based Product Costing
Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below.
Required:
1. Calculate the four activity rates.
2. Calculate the unit costs using activity rates. Round your answers to the nearest cent.
Calculate the overhead cost per unit. Round your answers to the nearest cent.
3. What if consumption ratios instead of activity rates were used to assigned costs? Show the cost assignment for the inspection activity.
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1. Machining rate: Overhead costs ÷ Total machine hours. The other three activity rates are calculated the same way using each activity's Overhead costs and totals.
2. Use the calculations from Requirement 1 to calculate the unit costs and also calculate OH cost per unit. Example of Total cost: Activity rate (above) × Basic OH costs and also Activity rate × Advanced OH costs. Example of OH costs per units: Total manufacturing costs÷ Units of production = Unit Cost (for Basic and Advanced).
3. Calculate unit costs using consumption ratios. Compare to activity rate unit costs. To assign inspection cost use the inspection hrs. for basic/advanced ÷ total inspection hrs. for both and give a conclusion.
Cornerstone Exercise 4.5 (Algorithmic)
Activity-Based Product Costing
Roberts Company produces two weed eaters: basic and advanced. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below.
Basic Advanced Total Units produced 150,000 450,000 ------ Prime costs $10,500,000 $52,200,000 $62,700,000 Machine hours 150,000 750,000 900,000 Engineering hours 400 3,600 4,000 Receiving orders 200 600 800 Inspection hours 800 1,600 2,400 Overhead costs: Machining $13,500,000 Engineering 1,920,000 Receiving 216,000 Inspecting products 480,000Required:
1. Calculate the four activity rates.
Machining rate $ per machine hour Engineering rate $ per hour Receiving rate $ per order Inspecting rate $ per hour2. Calculate the unit costs using activity rates. Round your answers to the nearest cent.
Unit cost Basic $ per unit Advanced $ per unitCalculate the overhead cost per unit. Round your answers to the nearest cent.
Overhead Cost Basic $ per unit Advanced $ per unit3. What if consumption ratios instead of activity rates were used to assigned costs? Show the cost assignment for the inspection activity.
Cost assignment Basic $ Advanced $Explanation / Answer
Answers
Overhead cost
Total cost drivers
Activity Rates
Machining
$ 135,00,000.00
900000
$ 15.00
per machine hour
Engineering
$ 19,20,000.00
4000
$ 480.00
per hour
Receiving
$ 2,16,000.00
800
$ 270.00
per order
Inspection Products
$ 4,80,000.00
2400
$ 200.00
per hour
Total
$ 161,16,000.00
Basic’s Overhead cost per unit
Activity rate
No. of cost driver
Overhead cost allocated
Machining
$ 15.00
150000
$ 22,50,000.00
Engineering
$ 480.00
400
$ 1,92,000.00
Receiving
$ 270.00
200
$ 54,000.00
Inspection Products
$ 200.00
800
$ 1,60,000.00
Total Overhead cost allocated
$ 26,56,000.00
Total Units
$ 1,50,000.00
Overhead cost per unit
$ 17.71
Advanced Overhead cost per unit
Activity rate
No. of cost driver
Overhead cost allocated
Machining
$ 15.00
750000
$ 112,50,000.00
Engineering
$ 480.00
3600
$ 17,28,000.00
Receiving
$ 270.00
600
$ 1,62,000.00
Inspection Products
$ 200.00
1600
$ 3,20,000.00
Total Overhead cost allocated
$ 134,60,000.00
Total Units
$ 4,50,000.00
Overhead cost per unit
$ 29.91
Product Unit Cost
Basic
Advanced
Prime Costs
$ 105,00,000.00
$ 522,00,000.00
Total Units
150000
450000
Prime cost per unit
$ 70.00
$ 116.00
Overhead cost per unit
$ 17.71
$ 29.91
Total Unit Cost
$ 87.71
$ 145.91
Working
Total Overhead cost
$ 161,16,000.00
Total Prime cost
$ 627,00,000.00
Overhead cost per Prime cost $ (Consumption)
$ 0.26
Basic' Prime cost
$ 105,00,000.00
Basic's Overhead cost allocated
$ 27,30,000.00
Overhead cost per unit
$ 18.20
Advanced Prime Costs
$ 522,00,000.00
Advanced's Overhead cost allocated
$ 135,72,000.00
Overhead cost per unit
$ 30.16
Basic
Advanced
Prime cost per unit
$ 70.00
$ 116.00
Overhead cost per unit
$ 18.20
$ 30.16
Total Unit Cost
$ 88.20
$ 146.16
Overhead cost
Total cost drivers
Activity Rates
Machining
$ 135,00,000.00
900000
$ 15.00
per machine hour
Engineering
$ 19,20,000.00
4000
$ 480.00
per hour
Receiving
$ 2,16,000.00
800
$ 270.00
per order
Inspection Products
$ 4,80,000.00
2400
$ 200.00
per hour
Total
$ 161,16,000.00