Panamint Systems Corporation is estimating activity costs associated with producing disk drives, tapes drives, and wire drives. The indirect labor can be traced to four separate activity pools. The budgeted activity cost and activity base data by product are provided below. Activity Cost Activity Base
Procurement $383,000 Number of purchase orders
Scheduling 211,000 Number of production orders
Materials handling 425,500 Number of moves
Product development 710,900 Number of engineering changes
Production 1,420,000 Machine hours

Number of Purchase Orders Number of Production Orders Number of Moves Number of Engineering Changes Machine Hours Number of Units
Disk drives 4,200 450 1,260 11 2,500 2,100
Tape drives 1,600 125 500 6 8,000 4,200
Wire drives 12,200 800 4,200 20 11,100 2,500

The activity-based cost for each disk drive unit is:

$297.18                                    

Explanation:

The computation of the activity based cost for each disk drive unit is shown below:

Particulars                Disk drive

Procurement              = $89,366.67

                        {$383,000 × 4,200 ÷ (4,200 + 1,600 + 12,200)}

Scheduling           =   $69,054.55

                        {$211,000 × 450 ÷ (450 + 125 + 800}}  

Material handling  = $89,954.70

                       {$425,500 × 1,260 ÷ (1,260 + 500 + 4,200)}

Product development = $211,348.65

                       {$710,900 × 11 ÷ (11 + 6 + 20)

Production= $164,351.85

                      {$1,420,000 × 2,500 ÷ (2,500 + 8,000 + 11,100)}

Total                                            $624,076.42

Divided by Disk drive Unit            2,100      

Activity based cost for

each disk drive unit is                      $297.18                                    

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