Activity in ABC

Problem 4-2-1

SuperSonic Company considering to drop one of its product lines due to its poor financial
performance in the last 5 years, and that there is no indication that the product has brighter
prospects in the coming years. Before making decisions, he requested you to once more look
into the annual budgeted data as presented below and present a report in 6 hours.

SURI SKYGOODBYE
Unit sales price P3500 P4600
Direct cost (Materials & 2800 2500
Labor)
Production in units 75,00 25,000
0
Machine hours 46,00 4,000
0
Inspection hours 45,50 3,000
0
Set-up hours 21 279

You have identified the indirect costs and their corresponding cost drivers as follows:

Budgeted Budgeted
Costs Costs Drivers Amount Activity
Utilities Machine hours P350,000 50,500 hrs
Inspections Inspection hours 450,000 5,000 hrs
Set-up costs No. of set-ups 5,500,000 300 set-ups
P5,700,000

The actual cost-driver levels are tabulated as follows:

Machine hours Inspection hours No. of set-ups

SURI 45,000 1,2500 21
SKYGOODBYE 5,500 3,850 279

The B Company has been traditionally allocating its indirect costs (e.g overhead) based on the
machine hours.

Required: Compute the unit cost for each product using the:

1. Activity Based Costing method