Activity Based Costing

Make a Decision: Analyze Gourmet Master, Inc. (from Chapter 4)

Obj. 7 Gourmet Master, Inc., uses activity-based costing to determine the cost of its stainless steel ovens. Activity-based product cost information is as follows:
Activity

Activity-Base
Usage (hrs. per unit)
x Activity Rate
per Hour
=
Activity Cost
Fabrication 0.75 $24.00 $18.00
Assembly 1.50 20.00 30.00
Inspection 0.30 25.00 7.50
Moving 0.25 12.00 3.00
Total activity cost per unit $58.50

These activities only include the labor portion of the cost. Fabrication is the cutting and shaping of metal to be used in the assembly of the ovens. If the metal is not fabricated properly, additional time is required during final assembly to trim and adjust the metal pieces to fit properly. This has been a problem in Assembly. Management proposes improvements in Fabrication requiring the fabrication work to be done slower, but more accurately. As a result, the time in fabrication will increase to an hour per unit. However, because of the additional care, the parts are expected to fit better during assembly, thus reducing assembly time to 1.10 hours per unit.

a. Determine the revised activity-based cost per unit under the new fabrication plan.

b. Does this plan reduce the activity cost per unit of the oven?

Be sure to show your work and highlight your answer to each question.

Submit your well-formatted response as a PDF or Word Doc. Assignment submissions will be checked by Unicheck plagiarism detection.