Question

Activity-Based Costing Southeastern 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: Activity Activity Costs Production $220,000 Setup 117,000 Moving 21,000 Shipping 105,000 Product engineering 102,000 Total $565,000 The activity bases identified for each activity are as follows: Activity Activity Base Production Machine hours Setup Number of setups Moving Number of moves Shipping Number of customer orders Product engineering Number of test runs The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

Answer 1

Total Activity Cost = $238,750

Activity Cost per unit = $477.50/unit

Step-by-step explanation:

Activity Rate for each Activity of Company Southeastern Papers:

Production = $220,000 / 1,100 mh = $200/mh

Setup = $117,000 / 260 setups = $450/setup

Moving = $21,000 / 600 moves = $35/move

Shipping = $105,000 / 1,000 customer orders = $105/customer order

Product Engineering = $102,000 / 170 test runs = $600/test run

Computer Paper Total Activity Cost and Activity Per Unit Cost:

Production = 400 mh x $200 per mh = $80,000

Setup = 80 setups x $450 per setup = $36,000

Moving = 230 moves x $35 per move = $8,050

Shipping = 310 customer order x $105 per customer order = $32,550

Product Engineering = 50 test run x $600 per test run = $30,000

Total Activity Cost = $80,000 + $36,000 + $8,050 + $32,550 + $30,000 = $186,600

Activity Cost Per Unit = $186,600 / 1,000 units = $186.60/unit

Newsprint Total Activity Cost and Activity Per Unit Cost:

Production = 500 mh x $200 per mh = $100,000

Setup = 30 setups x $450 per setup = $13,500

Moving = 70 moves x $35 per move = $2,450

Shipping = 140 customer order x $105 per customer order = $15,225

Product Engineering = 15 test run x $600 per test run = $9,000

Total Activity Cost = $100,000 + $13,500 + $2,450 + $15,225 + $9,000 = $140,175

Activity Cost Per Unit = $140,175 / 1,250 units = $112.14/unit

Specialty Paper Total Activity Cost and Activity Per Unit Cost:

Production = 200 mh x $200 per mh = $40,000

Setup = 150 setups x $450 per setup = $67,500

Moving = 300 moves x $35 per move = $10,500

Shipping = 550 customer order x $105 per customer order = $57,750

Product Engineering = 105 test run x $600 per test run = $63,000

Total Activity Cost = $40,000 + $67,500 + $10,500 + $57,750 + $63,000 = $238,750

Activity Cost Per Unit = $238,750 / 500 units = $477.50/unit