Question 3: Activity based costing (20 marks in total)

The Accountant for Pix Photographic supply Ltd has estimated the following activity cost pools and activity drivers for the coming year:

Activity	Budgeted overhead cost $	Activity driver	Required level for activity driver	Cost per unit of activity driver
Machine setups	300,000	No. of setups	100	$3,000 per setup
Material Handling	150,000	Weight of raw material	50,000 kg	$3 per kg
Hazardous waste control	75,000	Weight of hazardous chemicals used	10,000 kg	$7.50 per kg
Quality control	112,500	No. of inspections	1,000	$112.50 per inspection
Other overhead costs	300,000	Machine hours	20,000	$15 per machine hour
Total	937,500

An order for 1,000 boxes of film development chemicals has the following production requirements:

Machine setups	4 setups
Raw material	10,000 kg
Hazardous materials	2,000 kg
Inspections	10 inspections
Machine hours	500 machine hours

Required

1. Calculate the total overhead that should be assigned to the order for development of chemicals.
2. What is the overhead cost per box of chemicals?
3. If Pix Photographic Supply wee to use a plant-wide predetermined overhead rate based on machine hours, calculate he rate per hour.
4. Under the approach in requirement 3, how much overhead would be assigned to the order for development chemicals:
   1. in total
   2. per box of chemical?
5. Explain why these two product costing systems result in such widely differing costs. Which system do you recommend? Why?
6. Calculate the unit cost of a production order for 100 specially coated plates used in film development. In addition to direct material costing $180 per plate and direct labour costing $60 per plate, the order requires the following:

Machine setups	2 setups
Raw material	800 kg
Hazardous materials	300 kg
Inspections	3 inspections
Machine hours	50 machine hours