Bernacke Corp. is instituting an activity-based costing project in its 10-person

Question

Bernacke Corp. is instituting an activity-based costing project in its 10-person purchasing department. Annual departmental overhead costs are $731,250. Because finding the best supplier takes the majority of effort in the department, most of the costs are allocated to this activity area. Many purchase orders are received in a single shipment.

activity:                       allocation:                             measurement                quantity total costs
find best supplies          number of phone calls               375000                         375000
issue purchase order         number of purchase order          46875                         187500
review receiving report      number of receiving report        28125                       168750

One special-order product manufactured by the company required the following purchasing department activities: 225 telephone calls, 50 purchase orders, and 25 receiving reports.

a. What amount of purchasing department cost should be assigned to this product?
$

b. If 100 units of the product are manufactured during the year, what is the purchasing department cost per unit? Round your answer to the nearest cent.
$ per unit

c. If purchasing department costs had been allocated using telephone calls as the allocation base, how much cost would have been assigned to this product? Round your answer to the nearest cent.
$

Explanation / Answer

Solution Activity based costing activity: allocation: measurement quantity total costs Rate per activity find best supplies number of phone calls 375000 $375,000 $1.00 per call issue purchase order number of purchase order 46875 $187,500 $ 4.00 per p.o. review receiving report number of receiving report 28125 $168,750 $ 6.00 per receiving a. What amount of purchasing department cost should be assigned to this product? Allocation Number Rate Amount Number of calls 225 $1.00 $225 Number of Purchase orders 50 $4.00 $200 Number of receiving report 25 $6.00 $150 Total $575 b. If 100 units of the product are manufactured during the year, what is the purchasing department cost per unit? Round your answer to the nearest cent. $ per unit Total cost $575 Units produced 100 Per unit cost $5.75 ($575÷ 100) c. If purchasing department costs had been allocated using telephone calls as the allocation base, how much cost would have been assigned to this product? Round your answer to the nearest cent. Total Telephone calls 375,000 Total Overhead cost $731,250 Cost per call $ 1.95 Cost allocated to this product 225 x $1.95 = $438.75 Per unit cost = $4.39

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