Problem 18-3 Activity Cost Rates Tailgator Company produces four versions of its
ID: 2580542 • Letter: P
Question
Problem 18-3 Activity Cost Rates Tailgator Company produces four versions of its model 17-21 bicycle seat. The four versions have different shapes, but their processing operations and production costs are identical. During July, the following costs were incurred Direct materials Leather Metal frame Bolts $25,430 39,180 3,010 Materials handling Labor Equipment depreciation Electrical power Maintenance 8,232 4,410 2,460 5,184 Assembly Direct labor 13,230 Engineering design: Labor Electrical power Engineering overhead 4,116 1,176 7,644 Overhead Equipment depreciation Indirect labor Supervision Operating supplies Electrical power Repairs and maintenance Building occupancy overhead 7,056 30,870 17,640 4,410 10,584 21,168 52,920 July's output totaled 29,400 units. Each unit requires three machine hours of effort. Materials handling costs are allocated to the products based on direct materials cost, engineering design costs are allocated based on units produced, and overhead is allocated based on machine hours. Assembly costs are allocated based on direct labor hours, which are estimated at 882 for July During July, Tailgator Company completed 520 bicycle seats for Job 14. The activity usage for Job 14 was as follows: direct materials, $1,150; direct labor hours, 15Explanation / Answer
Tailgator Company
Material handling costs are allocated to products based on direct material cost.
Direct material cost –
Leather $25,430
Metal frame $39,180
Bolts $3,010
Total DM cost $67,620
Material handling costs –
Labor $8,232
Equipment depreciation $4,410
Electrical power $2,460
Maintenance $5,184
Total material handling cost $20,286
Proportion of Material handling cost to direct material cost = (20,286/67,620) x 100 = 30%
Assembly cost rate is allocated based on direct labor hours – 882 hours
Assembly cost = $13,230
Assembly cost rate = 13,230/882 = $15 per direct labor hour
Engineering design cost is allocated based on units produced.
Number of units produced = 29,400
Engineering design costs –
Labor $4,116
Electrical power $1,176
Engineering overhead $7,644
Total engineering design cost = $12,936
Engineering design cost per unit produced = 12,936/29,400 = $0.44 per unit
Overhead cost is allocated based on machine hours.
Machine hours = 3 hours per unit
Total machine hours for 29,400 units = 29,400 x 3 = 88,200 machine hours
Overhead cost –
Equipment depreciation $7,056
Indirect labor $30,870
Supervision $17,640
Operating supplies $4,410
Electrical power $10,584
Repairs and maintenance $21,168
Building occupancy overhead $52,920
Total overhead cost $144,648
Overhead cost per machine hour = $144,648/88,200 = $1.64 per machine hour
Bill of Activities - Job 14
Activity
Activity cost rate
Cost Driver Level
Activity Cost
Unit Level
Materials Handling
30%
per dollar of direct materials
$1,150
direct materials
$345
Assembly
$15
per direct labor hour
15
direct labor hours
$225
Batch Level
NONE
Product Level
Engineering Design
$0.44
per unit
520
units
$228.80
Facility Level
Overhead
$1.64
per machine hour
1,560
machine hours
$2,558.40
Total activity costs assigned to job
$3,357.20
Total units of job
520
Activity cost per unit
$6.46
Cost Summary:
Cost Summary:
Direct materials
$1,150
Activity costs
$3,357.20
Total cost of order
$4,507.20
product unit cost
$8.67
Bill of Activities - Job 14
Activity
Activity cost rate
Cost Driver Level
Activity Cost
Unit Level
Materials Handling
30%
per dollar of direct materials
$1,150
direct materials
$345
Assembly
$15
per direct labor hour
15
direct labor hours
$225
Batch Level
NONE
Product Level
Engineering Design
$0.44
per unit
520
units
$228.80
Facility Level
Overhead
$1.64
per machine hour
1,560
machine hours
$2,558.40
Total activity costs assigned to job
$3,357.20
Total units of job
520
Activity cost per unit
$6.46