1 Problem 3 Activity based Costing (5 + 21 + 3) 2 3 Berry Manufacturing Company is a diversified manufacturer that manufactures three products (Electra, Protos and Nutra) 4 a continuous production process. Senior management has asked the controller to conduct an activity-based costing study 5 The controller identified the amount of factory overhead required by the critical manufacturing activities as follows: 6 7 Activities 8 Materials handling 9 Setup 10 Machining 11 Engineering 12 Inspection 13 14 Activity Cost Pool Activity Base No. of Material order (MO) No. of Setups Machine Hours used (MH) $19,500 $135,000 $253,500 $150,000 No. of Engineering Hours (EH) $74,800 $632,800 No. of Inspection Hours (IH) 15 The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows: 16 17 18 No. of Material Orders (MO) No. of Setups No. of Machine hours (MH) No of Engineering hours (EH) No. of Inspection hours (IH) Number of Units Produced 19 Electra 300 200 2,250 300 300 3,000 20 Protos 200 150 1,125 250 200 1,500 21 Nutra 150 100 525 200 180 700 22 Total 650 450 3,900 750 680 23 24 Each product requires 45 minutes per unit of machine time. 25 26 Required: 27 A. Determine the activity rate for each activity. Round all per unit amounts to the nearest cent. 28 Formula: Activity rate = Activity cost pool + Number of activity base 29 30 Activities Activity Cost Pool 31 Materials handling 32 Setup 33 Machining 34 Engineering 35 Inspection 36 Number of Activity Base used Activity cost driver rate No. of MO No. of Setups No. of MH No. of EH No. of IH 37 B. Determine the total and per-unit activity cost for all three products. 38 Round all total costs to whole number and round all per unit amounts to the nearest cent. 39 Formula: Activity-Base Usage x Activity rate from Req. (1) = Activity cost; 40 Sum all activity costs per product to determine the total activity costs and 40 Sum all activity costs per product to determine the total activity costs and 41 Divide the total activity overhead by the number of units produced to compute the activity costs per unit for each produ 42 43 Products 44 Electra 45 Protos 46 Nutra 47 Total 48 Materials handling Setup Machining Engineering Inspection Total actvity costs Unit activity cost 49 C. Why aren't the unit activity costs equal across all three products since they require the same machine time per unit? 50 51 Answer: 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78