Slack Corporation has the following predicted indirect costs and cost drivers for 2016 for the given activity cost pools:

The following activity predictions were also made for the year:

It is assumed that the cost per unit of activity for a given activity does not vary between departments. Slack’s president, Charles Slack, is trying to evaluate the company’s product mix strategy regarding two of its five product models, ZX300 and SL500. The company has been using a company-wide overhead rate based on machine hours but is considering switching to either department rates or activity-based rates. The production manager has provided the following data for the production of a batch of 100 units for each of these models:

Required

a. Determine the cost of one unit each of ZX300 and SL500, assuming a company-wide overhead rate is used based on total machine hours.

b. Determine the cost of one unit of ZX300 and SL500, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments.

c. Determine the cost of one unit of ZX300 and SL500, assuming activity-based overhead rates are used for maintenance, materials handling, machine setup, and inspection activities.

d. Comment on the results of these cost calculations.

Transcribed Image Text:

Fabrication Department Finishing Department Cost Driver Maintenance.. Materials handling $ 20,000 $10,000 Machine hours 30,000 15,000 Material moves Machine setups 70,000 5,000 Machine setups Inspections.. 25,000 Inspection hours $120,000 $55,000