Question

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 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.

Answer 1

Answer:

Wieters Industries

a. Activity Rates:

Machine setup =    $250

Inspection =              300

Materials receiving   140

b. The activity-based unit cost of the smartphone case is:

= $13.04

Explanation:

a) Data and Calculations:

Activity             Activity Overhead $   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

Total overhead costs  $572,000

Activity Rates:

Machine setup =    $250 ($200,000/800)

Inspection =              300 ($120,000/400)

Materials receiving   140 ($252,000/1,800)

Budgeted data for smartphone case production:

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

Overhead Applied to Smartphone Case:

Number of setups 92 * $250 =             $ 23,000

Number of quality tests 400 * $300 =    120,000

Number of purchase orders 50 * $140 =   7,000

Total overhead applied =                      $150,000

Overhead per unit = $10 ($150,000/15,000)

Unit Cost of Smartphone Case:

Direct materials per unit  $2.50

Direct labor per unit        $0.54

Overhead per unit         $10.00

Total unit cost =             $13.04