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