ACCOUNTING
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
Production engineering 150,000
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
Production 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:
Machine Number of Number of Number of Number of Units
hours setups moves customer test runs
orders
Computer paper 900 130 290 440 90 1000
Newsprint 1125 60 130 135 20 1250
Speciality paper 450 310 430 625 140 500
Total 2475 500 850 1200 250 2750
Each product requires 0.9 machine hour per unit.
Instructions
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products. Round all per unit amounts to the nearest whole cent.
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?
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