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The cost accountant of ABC Manufacturing attended a workshop on activity-based costing and was impressed by the results. After consulting with the production personnel, he prepared the following information on cost drivers and the estimated volume for each driver.
Activity
Cost driver
Cost driver volume
Total
Machining
Ace
Best
Champ
Setup
Number of setups
125
75
50
250
Machine hours
2,500
1,500
2,000
6,000
Assembly
Direct labor hours
25,000
15,000
5,000
45,000
Inspection
Number of inspections
25
100
The cost accountant also determined how much overhead costs were incurred in each of the four activities as follows:
Overhead costs
$150,000
750,000
Total Machining department overhead
$900,000
$360,000
90,000
Total Assembly department overhead
$450,000
Total overhead costs
$1,350,000
Required:
a. Determine the cost driver rate for each activity cost pool.
b. Use the activity-based costing method to determine the unit cost for each product.
c. Summarize and comment the results.
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