Gwinnett 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 ........$ 495,000

Setup .............225,000

Moving ............29,750

Shipping ...........126,000

Product engineering .....150,000

Total ............$1,025,750

The activity 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:

Each product requires 0.9 machine hour per unit.
Instructions
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products.
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?

Transcribed Image Text:

Number of Customer Orders Machine Numb of Number of Number of Hours Setups Moves Test Runs Units Computer paper Newsprint Specialty paper 900 1,125 450 2,475 130 60 310 500 290 130 430 850 440 135 625 90 20 140 250 1,000 1,250 500 2,750 Total 1,200