Activity-Based Product Costing Alabama Paper Company manufactures three products

Question

Activity-Based Product Costing

Alabama Paper Company manufactures three products (computer paper, newsprint, and specialty paper) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

The activity bases identified for each activity are as follows:

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

Each product requires 0.9 machine hour per unit.

Required:

If required, round all per unit amounts to the nearest cent.

1. Determine the activity rate for each activity.

2. Determine the total and per-unit activity cost for all three products.

Activity Activity Cost Pool Production $503,700 Setup 124,500 Moving 96,800 Shipping 122,100 Product Engineering 47,200 Total $894,300

Explanation / Answer

1) Cost Driver Cost Pool Cost Total Activity Activity Rate Production per macine hour $503,700 7300 $69 Set up per set up $124,500 300 $415 Moving per move $96,800 1100 $88 Shipping per customer order $122,100 3700 $33 Product Engineering per test run $47,200 400 $118 2) Computer paper Newsprint Specialty paper Total Production $221,490 $140,760 $141,450 $503,700 Set up $33,200 $45,650 $45,650 $124,500 Moving $19,360 $29,040 $48,400 $96,800 Shipping $24,420 $67,320 $30,360 $122,100 Product Engineering $4,720 $29,500 $12,980 $47,200 Total Activity Cost $303,190 $312,270 $278,840 $894,300 Number of units 8025 5100 5125 Activity Cost per unit $37.78 $61.23 $54.41

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