Process Activity Analysis Garnett Company incurred an activity cost of $360,000

Question

Process Activity Analysis

Garnett Company incurred an activity cost of $360,000 for inspecting 60,000 units of production. Management determined that the inspecting objectives could be met without inspecting every unit. Therefore, rather than inspecting 60,000 units of production, the inspection activity was limited to 30% of the production.

Determine the inspection activity cost per unit on 60,000 units of total production both before and after the improvement. Round your answers to the nearest cent.

Inspection activity before improvement $ per unit Inspection activity after improvement $ per unit

Explanation / Answer

Part A)

The formula for calculating inspection activity before improvement is given below:

Inspection Activity before Improvement = Total Activity Cost/Total Units of Production

_______

Using the values provided in the question, we get,

Inspection Activity before Improvement = 360,000/60,000 = $6 per unit

_______

Part B)

The formula for calculating inspection activity after improvement is given below:

Inspection Activity after Improvement = (Total Activity Cost*Inspection Activity Percentage)/Total Units of Production

_______

Using the values provided in the question, we get,

Inspection Activity after Improvement = (360,000*30%)/60,000 = $1.80 per unit

_______

Tabular Representation:

Inspection Activity before Improvement $6 per unit Inspection Activity after Improvement $1.80 per unit

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