Liao Manufacturing produces two keyboards, one for laptop computers and the othe

Question

Liao Manufacturing produces two keyboards, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the keyboards. Activity Allocation Base Allocation Rate Materials receiving & handling Cost of material 2 % of material cost Production setup Number of setups $ 50.00 per setup Assembly Number of parts $ 2.50 per part Quality inspection Inspection time $ 0.75 per minute Packing and shipping Number of orders $ 10.00 per order Activity measures for the two kinds of keyboards follow. Labor Material Number Number Inspection Number Cost Cost of Setups of Parts Time of Orders Laptops $ 630 $ 3,000 30 42 3,600 min. 65 Desktops 575 2,400 12 24 2,500 min. 20

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Compute the cost per unit of laptop and desktop keyboards, assuming that Liao made 300 units of each type of keyboard. (Round your answers to 2 decimal places.)

COST PER UNIT

LAPTOP KEY BOARDS

DESKTOP KEYBOARDS

Required:

Explanation / Answer

Solution:

Computation of cost per unit of laptop and desktop keyboards by using activity-based costing, assuming that Liao made 300 units of each type of keyboard:

Working Note:

Cost per unit of laptop and desktop keyboards = Total cost under activity-based costing/ Number of keyboards

Cost per unit of laptop keyboard = 8,645/ 300 = 28.82

Cost per unit of laptop desktop keyboard = 5,758/ 300 = 19.19

Particulars Laptops Desktops Direct Materials          3,000           2,400 Direct Labor             630              575 Material Receiving & Handling ( 2% of Cost of materials)                60                 48 Production Set up Cost (50 per set-up x No. of set ups)          1,500              600 Assembly Cost (2.50 per part x No. of parts)             105                 60 Quality Inspection (0.75 per minute x Inspection time)          2,700           1,875 Packing and shipping (10.00 per order x No. of orders)             650              200 Total cost under activity-based costing          8,645           5,758 Number of keyboards             300              300 Cost per unit of laptop and desktop keyboards          28.82           19.19

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