Exercise 4-17 (Algo) Using activity-based costing to allocate overhead, compute product cost and gross profit LO P3

Ice Cool produces two different models of air conditioners. The activities, costs, and cost drivers associated with the production processes follow.

Process	Activity	Budgeted Cost	Activity Cost Driver	Budgeted Activity Usage
Assembly	Machining	$ 310,400	Machine hours (MH)	7,800
	Setups	24,000	Setups	120
		$ 334,400
Finishing	Inspecting	$ 230,000	Inspections	840
Support	Purchasing	$ 138,000	Purchase orders	570

Additional production information concerning its two models follows.

Units and Activities	Model X	Model Z
Units produced	1,800	3,600
Machine hours	2,400	5,400
Setups	40	80
Inspections	540	300
Purchase orders	380	190

Per Unit	Model X	Model Z
Selling price per unit	$ 410	$ 390
Direct materials cost per unit	155	120
Direct labor cost per unit	135	130

1. Compute the activity rate for each activity using activity-based costing. 2. Using activity-based costing, compute the overhead cost per unit for each model. 3. Compute the total product cost per unit for each model. 4. For each model, compute the gross profit per unit (selling price per unit minus product cost per unit).