Activity-Based Costing :
Parker Company produces mathematical and financial calculators and operates at capacity. Data related to the two product lines are presented here.
Mathematical
Financial
Annual production in units 50,000 100,000
Direct material costs (total) $200,000 $300,000
Direct labor costs (total) $50,000 $100,000
Direct labor hours (total) 2,500 5,000
Machine hours (total) 25,000 50,000
Number of production runs (total) 50 100
Inspection hours (total) 500 1,000
Manufacturing overhead costs total $600,000, and can be divided into the following three activity cost pools (with corresponding cost drivers):
Activities and Activity Cost Drivers
Machinery (machine hours) $375,000
Setup (production runs) 120,000
Inspection (inspection hours) 105,000
REQUIRED
:
Based on the above information, answer the following questions.
1. Compute the total cost per unit of the mathematical calculator and the financial calculator. Assume the company uses a single plant-wide rate based on direct labor hours to allocate manufacturing overhead to the two product lines.
a. Total product cost
per unit
of the
mathematical calculator:
b. Total product cost
per unit
of the
financial calculator
:
2. Calculate the activity cost rates in each of the three activity areas, assuming the use of ABC.
a. Machinery cost rate
per machine hour
:
b. Setup cost rate
per production run
:
c. Inspection cost rate
per inspection hour
:
3. Compute the new product cost per unit for the mathematical and financial calculator, using the ABC system.
a. Total product cost
per unit
of the
mathematical calculator
:
b. Total product cost
per unit
of the
financial calculator
:
4. Is there any difference in the cost of the two calculators using the single-plant wide rate and the ABC method? Briefly explain why or why not: