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 $317,500 Number of purchase orders Scheduling 217,400 Number of production orders Materials handling 429,500 Number of moves Product development 738,800 Number of engineering changes Production 1,506,700 Machine hours Number of Purchase Orders Number of Production Orders Number of Moves Number of Engineering Changes Machine Hours Number of Units Disk drives 3,860 300 1,330 15 1,800 2,500 Tape drives 2,500 135 740 7 8,300 3,600 Wire drives 12,600 790 4,100 30 10,200 2,500 The activity rate for the procurement activity cost pool is

Panamint Systems Corporation

Activity rate for the procurement activity cost pool:

= Procurement/Number of purchase orders

= $317,500/18,960

= $16.75

Explanation:

a) Data:

Activity Pools                                   Disk Drives   Tape Drives   Wire Drives

Number of Purchase Orders                3,860            2,500      12,600

Number of Production Orders                300                135           790      

Number of Moves                                  1,330               740         4,100

Number of Engineering Changes            15                     7            130

Machine Hours                                      1,800            8,300      10,200

Number of Units                                  2,500            3,600         2500

Activity rate for the procurement activity cost pool:

= Procurement/Number of purchase orders

= $317,500/18,960

= $16.75 per order

The Panamint Systems Corporation activity rate for the procurement activity cost pool is the total procurement cost divided by the number of purchase orders across the three product lines.  This produces a rate for obtaining the procurement cost for each product line of disk drives, tapes drives, and wire drives, using the activity-based costing (ABC) system.

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