Activity-based product costing
Alabama Paper Company manufactures three products (computer paper, newsprint, and specialty paper) 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 Cost Pool | |||
|---|---|---|---|---|
| Production | $451,400 | |||
| Setup | 263,200 | |||
| Moving | 72,000 | |||
| Shipping | 152,000 | |||
| Product Engineering | 92,400 | |||
| Total | $1,031,000 | |||
Theactivity bases identified for each activity are as follows:
| Activity | Activity Base |
| Production | Machine hours |
| Setup | Number of setups |
| Moving | Number of moves |
| Shipping | Number of customer orders |
| Product Engineering | Number of test runs |
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
| Machine Hours |
Number of Setups |
Number of Moves |
Number of Customer Orders |
Number of Test Runs |
Units | ||
| Computer Paper | 3,260 | 180 | 180 | 760 | 70 | 8,150 | |
| Newsprint | 2,070 | 270 | 270 | 2,090 | 440 | 5,175 | |
| Specialty Paper | 2,070 | 250 | 450 | 950 | 190 | 5,175 | |
| Total | 7,400 | 700 | 900 | 3,800 | 700 | 18,500 | |
Each product requires 0.9 machine hour per unit.
If required, round all per unit amounts to the nearest cent.
1. Determine theactivity rate for each activity.
| Production | $ per machine hour |
| Setup | $ per setup |
| Moving | $ per move |
| Shipping | $ per cust. ord. |
| Product Engineering | $ per test run |
2. Determine the total and per-unit activity cost for all three products. Round per unit answers to the nearest cent.
| Total Activity Cost | Activity Cost per Unit | |
| Computer Paper | $ | $ |
| Newsprint | $ | $ |
| Specialty Paper | $ | $ |
3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?
The input in the box below will not be graded, but may be reviewed and considered by your instructor.
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