Southeastern 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 Costs

Production.............................................................................. $220,000

Setup ...................................................................................... 117,000

Moving ...................................................................................... 21,000

Shipping .................................................................................... 105,000

Product engineering........................................................................ 102,000

Total ................................................................................... $565,000

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 0.4 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:

Machine Number of Number of Hours 400 500 200 1,100 Setups 80 30 150 260 Moves 230 70 300 600 Customer Orders 310 140 550 1,000 Number of Test Runs 50 15 105 170 Units 1,000 1,250 500 2,750 Computer paper Newsprint Specialty paper Total