Sweet Sugar Company manufactures three products white sugar

Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) 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:

1

Activity

Budgeted Activity Cost

2

Production

$500,000.00

3

Setup

144,000.00

4

Inspection

44,000.00

5

Shipping

115,000.00

6

Customer service

84,000.00

7

Total

$887,000.00

The activity bases identified for each activity are as follows:

Activity

Activity Base

Production

Machine hours

Setup

Number of setups

Inspection

Number of inspections

Shipping

Number of customer orders

Customer service

Number of customer service requests

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

Customer Service

Hours

Setups

Inspections

Customer Orders

Requests

Units

White sugar

5,000

85

220

1,150

60

10,000

Brown sugar

2,500

170

330

2,600

350

5,000

Powdered sugar

2,500

195

550

2,000

190

5,000

Total

10,000

450

1,100

5,750

600

20,000

Each product requires 0.5 machine hour per unit.

Required:

Complete the Activity Tables for White sugar, Brown sugar, and Powdered sugar.

1. Determine the activity rate for each activity.*

2. Use the activity rates in (1) to determine the total and per-unit activity costs associated with 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?

* If required, round all per-unit amounts to the nearest cent.

Solution

ANS

1) ACTIVITY RATE

PRODUCTION $50 PER MACHINE HOUR

SETUP $320 PER SETUP

INSPECTION $40 PER INSPECTION

SHIPPING $20 PER CUSTOMER ORDER

CUSTOMER SERVICE $140 PER REQUESTS

2) TOTAL ACTIVITY COST ACTIVITY COST PER UNIT

WHITE SUGAR $317400 $31.74

BROWN SUGAR $293600 $58.72

POWDERED SUGAR $276000 $55.20

3) BEACUSE THE PRODUCTS CONSUME MANY ACTIVITIES IN RATIOS DIFFERENT FROM THE VOLUME.