I am having difficulty setting up the following problem and distinguishing what
ID: 2375838 • Letter: I
Question
I am having difficulty setting up the following problem and distinguishing what information is extraneous...Compute the activity cost rates for materials handling, assembly, and design based on these data:
Materials
Cloth 26,000
Fasteners 4,000
Purchased parts 40,000
Materials handling
Labor 8,000
Equipment depreciation 5,000
Electrical power 2,000
Maintenance 6,000
Assembly
Machine operations 5,000
Design
Labor 5,000
Electrical power 1,000
Overhead 8,000
Output totaled 40,000 units. Each unit requires three machine hours of effort. Materials handling costs are allocated to the products based on direct materials cost. Design costs are allocated based on units produced. Assembly costs are allocated based on 500 machine operator hours. (Hint: activity cost rate = total activity costs/total allocation base. Examples of an allocation base include total dollars of materials, total machine operator hours, or total units of output).
Explanation / Answer
Materials
Materials handling
Assembly
Design
Cloth
26,000
Labor
8,000
Machine operations
5,000
Labor
5,000
Fasteners
4,000
Equipment depreciation
5,000
Electrical power
1,000
Purchased parts
40,000
Electrical power
2,000
Overhead
8,000
Maintenance
6,000
Totals
70,000
21,000
5,000
14,000
We assume allocation basis
Materials
total units of output
40000
Materials handling
direct materials cost(Total of materials)
45,000
Assembly
500 machine operator hours
500
Design
total units of output
40000
Activity cost rate = total activity costs/total allocation base
Activity cost rate
Materials
70000/40000
=
1.75
Materials handling
21000/45000
=
0.466666667
Assembly
5000/500
=
10
Design
14000/40000
=
0.35
Materials
Materials handling
Assembly
Design
Cloth
26,000
Labor
8,000
Machine operations
5,000
Labor
5,000
Fasteners
4,000
Equipment depreciation
5,000
Electrical power
1,000
Purchased parts
40,000
Electrical power
2,000
Overhead
8,000
Maintenance
6,000
Totals
70,000
21,000
5,000
14,000
We assume allocation basis
Materials
total units of output
40000
Materials handling
direct materials cost(Total of materials)
45,000
Assembly
500 machine operator hours
500
Design
total units of output
40000
Activity cost rate = total activity costs/total allocation base
Activity cost rate
Materials
70000/40000
=
1.75
Materials handling
21000/45000
=
0.466666667
Assembly
5000/500
=
10
Design
14000/40000
=
0.35
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