Hercules Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows: Activity Activity
Rate Fabrication $30 per machine hour
Assembly $35 per direct labor hour
Setup $90 per setup
Inspecting $20 per inspection
Production scheduling $19 per production order
Purchasing $5 per purchase order

The activity-base usage quantities and units produced for each product were as follows:

Activity Base Elliptical Machines Treadmill
Machine hours 600 400
Direct labor hours 190 223
Setups 30 30
Inspections 15 25
Production orders 40 30
Purchase orders 318 85
Units produced 500 320

Required:
Use the activity rate and usage information to determine the total activity cost and activity cost per unit for each product.

Results are below.

Explanation:

First, we need to allocate costs using the following formula:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Elliptical Machines:

Rate Fabrication= 30*600= 18,000

Assembly= 35*190= 6,650

Setup= 90*30= 2,700

Inspecting= 20*15= 300

Production scheduling= 19*40= 760

Purchasing= 5*318= 1,590

Total allocated costs= $30,000

Treadmill:

Rate Fabrication= 30*400= 12,000

Assembly= 35*223 7,805

Setup= 90*30= 2,700

Inspecting= 20*25= 500

Production scheduling= 19*30= 570

Purchasing= 5*85= 425

Total allocated costs= $24,000

Finally, the unitary costs:

Elliptical Machines= 30,000 / 500= $60

Treadmill= 24,000 / 320= $75

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