7-8 Calculating product costs using activity-based costing (CIMA adapted) (LO 2) Wieters Industries manufactures several products including a basic case for a popular smartphone. The company is considering adopting an activity-based costing approach for setting its budget. The company's production activities, budgeted activity costs, and cost drivers for the coming year are as follows. Activity Activity Overhead $ Cost Driver Cost DriverQuantity Machine setup $ 200,000 # of setups 800 Inspection 120,000 # of quality tests 400 Materials receiving 252,000 # of purchase orders 1,800 The budgeted data for smartphone case production are as follows. Direct materials $2.50 per unit Direct labor $0.54 per unit Number of setups 92 Number of quality tests 400 Number of purchase orders 50 Production 15,000 units Required a.Calculate the activity rate for each cost pool. b.Calculate the activity-based unit cost of the smartphone case.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
7-8 Calculating product costs using activity-based costing (CIMA adapted) (LO 2) Wieters Industries manufactures several products including a basic case for a popular smartphone. The company is considering adopting an activity-based costing approach for setting its budget. The company's production activities, budgeted activity costs, and cost drivers for the coming year are as follows.
|
Activity
|
Activity
|
Cost Driver
|
Cost Driver
Quantity |
| Machine setup |
$ 200,000
|
# of setups |
800
|
| Inspection |
120,000
|
# of quality tests |
400
|
| Materials receiving |
252,000
|
# of purchase orders |
1,800
|
The budgeted data for smartphone case production are as follows.
| Direct materials | $2.50 per unit |
| Direct labor | $0.54 per unit |
| Number of setups | 92 |
| Number of quality tests | 400 |
| Number of purchase orders | 50 |
| Production | 15,000 units |
Required
a.Calculate the activity rate for each cost pool.
b.Calculate the activity-based unit cost of the smartphone case.
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