Seedling Corporation would like to institute an activity-based costing system to
ID: 2708371 • Letter: S
Question
Seedling Corporation would like to institute an activity-based costing system to price products. The Purchasing Department incurs a total cost of $467,000 per year and has 5 employees. The three major activities that occur during the year are as follows:
Activity
Allocation
Measure
# of
People
Total
Cost
Issuing purchase orders
# of purchase orders
1
$95,000
Reviewing receiving reports
# of receiving reports
2
$209,400
Making phone calls
# of phone calls
2
$162,600
During the year, 58,400 phone calls were made in the department; 21,000 purchase orders were issued; and 19,990 shipments were received. Product A required 470 phone calls, 220 receiving reports, and 280 purchase orders. Product B required 490 phone calls, 205 receiving reports, and 240 purchase orders.
a. Determine the amount of Purchasing Department cost that should be assigned to each of these products.
b. Determine the Purchasing Department cost per unit if 2,100 units of Product A and 2,800 units of Product B.
Activity
Allocation
Measure
# of
People
Total
Cost
Issuing purchase orders
# of purchase orders
1
$95,000
Reviewing receiving reports
# of receiving reports
2
$209,400
Making phone calls
# of phone calls
2
$162,600
Seedling Corporation would like to institute an activity-based costing system to price products. The Purchasing Department incurs a total cost of $467,000 per year and has 5 employees. The three major activities that occur during the year are as follows: During the year, 58,400 phone calls were made in the department; 21,000 purchase orders were issued; and 19,990 shipments were received. Product A required 470 phone calls, 220 receiving reports, and 280 purchase orders. Product B required 490 phone calls, 205 receiving reports, and 240 purchase orders. Determine the amount of Purchasing Department cost that should be assigned to each of these products. Determine the Purchasing Department cost per unit if 2,100 units of Product A and 2,800 units of Product B.Explanation / Answer
Hi
Please find the answer as follows:
Part A:
Purchasing Department Cost = Issuing Purchase Orders + Reviewing Receiving Reports + Making Phone Calls
Product A = 95000*280/21000 + 209400*220/19990 + 162600*470/58400 = 4879.15
Product B = 95000*240/21000 + 209400*200/19990 + 162600*490/58400 = 4545.04
Part B:
Purchasing Department Cost per Unit = Total Purchasing Cost for the Department/Number of Units
Product A = 4879.15/2100 = $ 2.32 per unit
Product B = 4545.04/2800 = $ 1.62 per unit
Thanks.