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Activity Based Costing


Rapid City Radiology, Inc. manufactures chemicals used in radiological imaging systems. The controller has established the following activity cost pools and cost drivers.

Activity cost pools Budgeted overhead cost cost driver budgeted level for cost driver pool rate
Machine setups $1,000,000 Number of setups 250 $4,000 per setup
Material handling 300,000 Weight of raw material 75,000 lb. $4 per pound
Hazardous waste control 100,000 Wght of hazardous chemicals used 10,000 lb. $10 per pound
Quality control 300,000 Number of inspections 2,000 $150 per inspection
Other overhead costs 800,000 Machine hours 40,000 $20 per machine hr.
Total $2,500,000

Calculate the unit costs of a production order for 100 specially coated plates used in radiological imaging. In adition to diret material costing $210 per plate and direct labor costing $60 per plate, the order requires:

Machine setups 4
Raw material 800 pounds
Hazardous materials 400 pounds
Inspections 4
Machine hours 60


Solution Preview

The unit costs consists of direct material + direct labor + overhead.

We first calculate the overhead costs using the ABC details provided
The overhead costs are allocated based on the cost ...

Solution Summary

The solution explains how to use Activity Based Costing in calculating unit cost.