Activity Bese Number of customer service Machine Number of Number ofr Customer Hours Setups Inspectione Orders res 0.25 machine hour per 非! il川 i

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Activity-Based Costing
Pure Cane Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) 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 Costs
Production
$247,500
Setup
48,000
Inspection
12,500
Shipping
69,300
27,600
Customer service
$404,900
Total
The activity bases identified for each activity are as follows:
Activity
Activity Base
Production
Machine hours
Setup
Number of setups
Inspection
Number of inspections
Shipping
Number of customer orders
Customer
Number of customer service
service
requests
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
Number of
Number of
Customer
Customer
Service
Machine
Number of
Number of
Orders
Requests
Units
Hours
Setups
Inspections
410
25
8,000
White sugar
2,000
50
100
1,100
200
5,000
Brown sugar
1,250
70
160
800
120
5,000
Powdered sugar
1,250
80
240
2,310
345
18,000
4,500
200
500
Total
Each product requires 0.25 machine hour per unit.
Required:
1. Determine the activity rate for each activity.
Activity Rate
Production
/mh
Setup
%24
/setup
Inspection
finsp.
Shipping
/cust. ord.
Customer Service
/req.
2. Determine the total and per-unit activity costs for all three products. Round "Activity cost per unit" answers to two decimal places.
White Sugar
Brown Sugar
Powdered Sugar
Total activity cost
%24
Activity cost per unit
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?
Transcribed Image Text:Activity-Based Costing Pure Cane Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) 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 Costs Production $247,500 Setup 48,000 Inspection 12,500 Shipping 69,300 27,600 Customer service $404,900 Total The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Inspection Number of inspections Shipping Number of customer orders Customer Number of customer service service requests The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: Number of Number of Customer Customer Service Machine Number of Number of Orders Requests Units Hours Setups Inspections 410 25 8,000 White sugar 2,000 50 100 1,100 200 5,000 Brown sugar 1,250 70 160 800 120 5,000 Powdered sugar 1,250 80 240 2,310 345 18,000 4,500 200 500 Total Each product requires 0.25 machine hour per unit. Required: 1. Determine the activity rate for each activity. Activity Rate Production /mh Setup %24 /setup Inspection finsp. Shipping /cust. ord. Customer Service /req. 2. Determine the total and per-unit activity costs for all three products. Round "Activity cost per unit" answers to two decimal places. White Sugar Brown Sugar Powdered Sugar Total activity cost %24 Activity cost per unit 3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?
Expert Solution
Step 1

Activity rate for overhead allocation = Total overhead cost/ Activity level

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