Obj. 7 Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is as follows: Activity-Base Activity Usage (hrs. per x unit) Activity Rate per Hour = Activity Cost Fabrication 0.75 $24.00 $18.00 Assembly 1.50 20.00 30.00 Inspection 0.30 25.00 7.50 Moving 0.25 12.00 3.00 Total activity cost per unit $58.50 These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during assembly, thus reducing assembly time to 1.10 hours per unit. a. Determine the revised activity-based cost per unit under the new fabrication plan. b. Does this plan reduce the activity cost per unit of the oven?
Obj. 7 Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is as follows: Activity-Base Activity Usage (hrs. per x unit) Activity Rate per Hour = Activity Cost Fabrication 0.75 $24.00 $18.00 Assembly 1.50 20.00 30.00 Inspection 0.30 25.00 7.50 Moving 0.25 12.00 3.00 Total activity cost per unit $58.50 These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during assembly, thus reducing assembly time to 1.10 hours per unit. a. Determine the revised activity-based cost per unit under the new fabrication plan. b. Does this plan reduce the activity cost per unit of the oven?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Obj. 7 Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is
as follows:
Activity-Base
Activity
Usage (hrs. per x
unit)
Activity
Rate
per Hour
= Activity Cost
Fabrication
0.75
$24.00
$18.00
Assembly
1.50
20.00
30.00
Inspection
0.30
25.00
7.50
Moving
0.25
12.00
3.00
Total
activity
cost per
unit
$58.50
These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If
the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a
problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a
result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during
assembly, thus reducing assembly time to 1.10 hours per unit.
a. Determine the revised activity-based cost per unit under the new fabrication plan.
b. Does this plan reduce the activity cost per unit of the oven?
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