Peter Inc. of Cebu Ltd. has decided to institute a pilot activity-based costing project in its five-person purchasing department. Annual departmental costs are P473,500. Because finding the best supplier takes the majority of effort in the department, most of the costs are allocated to this area. 

 

Activity

Cost driver

Number of people

Total cost

Find best suppliers

Number of telephone calls

3

 

 P700,000

 

Issue purchase orders

Number of purchase orders

1

 

 500,000

 

Review receiving reports

Number of receiving reports

1

 

 76,500

 

 

During the year, the purchasing department made 170,000 telephone calls, issued 20,000 purchase orders, and reviewed 7,000 receiving reports. Many purchase orders are received in a single shipment.

 

 

One product manufactured by Cebu Ltd. required the following purchasing department activities: 155 telephone calls, 60 purchase orders, and 15 receipts.

 

Required:

a. What amount of purchasing department cost should be assigned to the product?

b. What is the purchasing department cost per unit would be if 200 units of the product are manufactured during the year?

Answer rating: 100% (QA)

a To determine the amount of purchasing department cost that should be assigned to the product we ne... View the full answer