The cost accountant of ABC Manufacturing attended a workshop on activity-based costing and was impressed by the results. After consulting with the production personnel, he prepared the following information on cost drivers and the estimated volume for each driver.
|
Activity
|
Cost driver
|
Cost driver volume
|
Total
|
|
Machining
|
|
Ace
|
Best
|
Champ
|
|
|
Setup
|
Number of setups
|
125
|
75
|
50
|
250
|
|
Machining
|
Machine hours
|
2,500
|
1,500
|
2,000
|
6,000
|
|
Assembly
|
|
|
|
|
|
|
Assembly
|
Direct labor hours
|
25,000
|
15,000
|
5,000
|
45,000
|
|
Inspection
|
Number of inspections
|
50
|
25
|
25
|
100
|
The cost accountant also determined how much overhead costs were incurred in each of the four activities as follows:
|
Activity
|
Overhead costs
|
|
Machining
|
|
|
Setup
|
$150,000
|
|
Machining
|
750,000
|
|
Total Machining department overhead
|
$900,000
|
|
Assembly
|
|
|
Assembly
|
$360,000
|
|
Inspection
|
90,000
|
|
Total Assembly department overhead
|
$450,000
|
|
Total overhead costs
|
$1,350,000
|
Required:
a. Determine the cost driver rate for each activity cost pool.
b. Use the activity-based costing method to determine the unit cost for each product.
c. Summarize and comment the results.