Problem:
Use the information below for Bob’s tires:
Activity Activity Costs Cost driver
Product Design $212,000 1,500 design hours
Product Scheduling $180,000 400 set-ups
Machining $600,000 5,000 machine hours
Material Handling $160,000 4,000 pallet moved
Cost and activity associated with producing 400 units of product number A-1 is as follows:
Direct materials $5,400
Direct labor $1,200
Design hours 5
Set-ups 3
Labor hours 40
Machine hours 18
Pallets moved 10
Units produced 400
1. Develop activity rates for each of the four activities of Bob’s.
2. What is the product cost for ONE UNIT of A-1 using ABC rates for applying overhead.
3. What is the product cost of one unit of A-1 if Bob’s uses a plant-wide overhead rate based on machine hours (assume 5,000 machine hours plant-wide).