Atlanta Systems produces two different products, Product A, which sells for $250 per unit, and Product B, which sells for $400 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows: CostUsage by Product AUsage by Product BDesign (Engineering Hours)$150,000 100 150 Machining (Machine Hours)$1,000,000 2,000 3,000 Inspection (Batches)$80,000 50 30 Atlanta manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $100 of direct materials and $45 of direct labor, while each
unit of Product B uses $140 of direct materials and $75 of direct labor. Required: a. Calculate the Design activity proportions for Products A and B. b. Calculate the Machining activity proportions for Products A and B. c. Calculate the Inspection activity proportions for Products A and B. d. Determine the indirect costs assigned to Product A. e. Determine the indirect costs assigned to Product B. f. Determine the manufacturing cost per unit for Product A. g. Determine the manufacturing cost per unit for Product B. h. Determine the gross profit per unit for Product A. i. Determine the gross profit per unit for Product B.
What will be an ideal response?
a. Product A: 40% = 100/(100 + 150); Product B: 60% = 150/(100 + 150)
b. Product A: 40% = 2,000/(2,000 + 3,000); Product B: 60% = 3,000/(2,000 + 3,000)
c. Product A: 62.5% = 50/(50 + 30); Product B: 37.5% = 30/(50 + 30)
d. $510,000 = (40% × $150,000) + (40% × $1,000,000) + (62.5% × $80,000)
e. $720,000 = (60% × $150,000) + (60% × $1,000,000) + (37.5% × $80,000)
f. $196 = $100 + $45 + ($510,000/10,000)
g. $311 = $140 + $75 + ($720,000/7,500)
h. $54 = $250 ? $196
i. $89 = $400 ? $311
Activity proportion = Activity driver usage/Total activity driver usage. Activity proportion × Cost = Activity cost. Sum of activity costs = Indirect costs assigned to each product. Manufacturing cost = Direct materials + Direct labor + Indirect costs. Gross profit = Selling price ? Manufacturing cost
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