Question

ctivity-Based Costing Casual Cuts Inc. has total estimated factory overhead for the year of $225,000, divided into four activities: cutting, $90,000; sewing, $22,500; setup, $80,000; and inspection, $32,500. Casual Cuts manufactures two types of men's pants: jeans and khakis. The activity-base usage quantities for each product by each activity are as follows: Cutting Sewing Setup Inspection Jeans 500 dlh 1,000 dlh 250 setups 100 inspections Khakis 1,000 500 750 400 1,500 dlh 1,500 dlh 1,000 setups 500 inspections Each product is budgeted for 10,000 units of production for the yea

Answer 1

Answer:The activity rate for each activity of Company CC is:

Activity rate for cutting is $60 per dlh.

Activity rate for sewing is $15 per dlh.

Activity rate setup is $80 per setup.

Activity rate for inspection is $65 per inspection.

Explanation: Activity based costing trace overhead cost to each activity and absorbed at a rate for each activity rather than a rate per direct labour hour

Calculate activity rate for cutting

Cutting = cost of cutting/ Number of labour hours

$90,000/1500 = $60 per direct labour hour

Calculate the cost of sewing

Sewing= cost of sewing/ Number of labour hours

$22,500/1500 = $15 per direct labour hour

Calculate the cost of set up

Setup = cost of set up/ number of set ups

$80,000/ 1000 = $80 per set up

Calculate the cost of inspection

Inspection = cost of inspection/ number of inspection

$32,500/ 500 = $65 per inspection