Gwinnett 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 Cost Pool
Production $ 495,000
Setup 225,000
Moving 29,750
Shipping 126,000
Product engineering 150,000
Total $1,025,750
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:
Number of
Machine Number of Number of Customer Number of
Hours Setups Moves Orders Test Runs Units
|
Computer paper
|
900
|
130
|
290
|
440
|
90
|
1,000
|
|
Newsprint
|
1,125
|
60
|
130
|
135
|
20
|
1,250
|
|
Specialty paper
|
450
|
310
|
430
|
625
|
140
|
500
|
|
Total
|
2,475
|
500
|
850
|
1,200
|
250
|
2,750
|
Each product requires 0.9 machine hour per unit.
I nstiuctions
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products.
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?