ActivityBased Product Costing Sweet Sugar Company manufactur

Activity-Based Product Costing 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: Activity Production Setup Inspection Shipping Customer service Budgeted Activity Cost $375,200 255,000 75,000 122,400 39,000 $866,600 Total The activity bases identified for each activity are as follows: Activity Production Setup Inspection Shipping Customer service Number of customer service requests The activity-base usage quantities and units produced for the three products were determined from Activity Base Machine hours Number of setups Number of inspections Number of customer orders

Solution

Answer to Part 1.

Production cost per Machine Hour = 375,200 / 6,700
Production cost per Machine Hour = $56 per Machine Hour

Setup cost per Setup = 255,000 / 600
Setup cost per Setup = $425 per Setup

Inspection cost per Inspection = 75,000 / 1,000
Inspection cost per Inspection = $75 per Inspection

Shipping cost per Customer Orders = 122,400 / 3,600
Shipping cost per Customer Orders = $34 per Customer Orders

Customer Service cost per Customer Service requests = 39,000 / 300
Customer Service cost per Customer Service requests = $130 per Service requests

Answer to Part 2.

White Sugar:
White Sugar Activity Cost = ($56 * 2,950) + ($425 * 150) + ($75 * 200) + ($34 * 720) + ($130 * 30)
White Sugar Activity Cost = $165,200 + $63,750 + $15,000 + $24,480 + $3,900
White Sugar Activity Cost = $272,330

Activity Cost per Unit = 272,330 / 7,375
Activity Cost per Unit = $36.93

Brown Sugar:
Brown Sugar Activity Cost = ($56 * 1,880) + ($425 * 230) + ($75 * 300) + ($34 * 1,980) + ($130 * 190)
Brown Sugar Activity Cost = $105,280 + $97,750 + $22,500 + $67,320 + $24,700
Brown Sugar Activity Cost = $317,550

Activity Cost per Unit = 317,550 / 4,700
Activity Cost per Unit = $67.563

Powdered Sugar:
Powdered Sugar Activity Cost = ($56 * 1,870) + ($425 * 220) + ($75 * 500) + ($34 * 900) + ($130 * 80)
Powdered Sugar Activity Cost = $104,720 + $93,500 + $37,500 + $30,600 + $10,400
Powdered Sugar Activity Cost = $276,720

Activity Cost per Unit = 276,720 / 4,675
Activity Cost per Unit = $59.19

Answer to Part 3.

The unit costs are different because the products consume many activities in ratios different from the other products.