Computing product cost with given activity allocation rates Paton Manufacturing produces two mode

Computing product cost with given activity allocation rates Paton Manufacturing produces two modems, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved in producing the modems.

Activity

Allocation Base

Allocation Rate

Materials receiving & handling

Cost of material

2% of material cost

Production setup

Number of setups

$100.00 per setup

Assembly

Number of parts

$5.00 per part

Quality inspection

Inspection time

$1.50 per minute

Packing and shipping

Number of orders

$10.00 per order

Activity measures for the two kinds of modems follow.

 

 Labor

CostMaterial

CostNumber

of SetupsNumber

of PartsInspection

TimeNumber

of Orders

Laptops

$2,500

$10,000

30

42

7,200 min.

65

Desktops

2,100

15,000

12

24

5,100 min.

20

Required

a. Compute the cost per unit of laptop and desktop modems, assuming that Paton made 300 units of each type of modem.

b. Explain why laptop modems cost more to make even though they have less material cost and are smaller than desktop modems.

 

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