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# Activity base costing

Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:

Direct
Labor-Hours Annual
Per Unit Production
Rims...... 0.40 20,000 units
Posts...... 0.20 80,000 units

a) Rims require \$17 in direct materials per unit, and Posts require \$10.
b) The direct labor wage rate is \$16 per hour.
c) Rims are more complex to manufacture than Posts, and they require special equipment.
d) The ABC system has the following activity cost pools:

Estimated
Activity Cost Pool Activity Measure Cost Total Rims Posts
Machine setups Number of setups \$21,600 180 100 80
Special processing Machine-hours \$180,000 4,000 4,000 -
General factory Direct Labor Hrs \$288,000 24,000 8,000 16,000
\$489,600

Required:

1. Compute the activity rate (i.e., predetermined overhead rate) for each activity cost pool.
2. Determine the unit product cost of each product according to the ABC system, including direct materials and direct labor.

#### Solution Summary

Excel file shows calculations of activity rate and cost per unit of each product using activity based costing.

\$2.19