Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 34

Resources Used versus Resources Supplied

Gunnison Supply provides the following information about resources:

	Cost Driver Rate	Cost Driver Volume
Resources used
Materials&	$ 12 per pound	4,000 pounds
Energy&	48 per machine-hour	170 machine-hours
Setups&	300 per setup	40 setups
Purchasing&	240 per purchase order	40 purchase orders
Customer service&	160 per return	25 returns
Long-term labor&	80 per labor-hour	160 labor-hours
Administrative &	60 per labor-hour	210 labor-hours
Resources supplied&
Materials&	$48,000
Energy&	9,120
Setups&	12,600
Purchasing&	11,000
Customer service&	8,800
Long-term labor&	13,250
Administrative &	13,500

In addition, sales for the period totaled $150,000. Required

a.Compute unused resource capacity for each resource.

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b.Describe what the term unused resource capacity means.

Step 1 of 7

Activity based costing

Activity based costing is modern method used to assign overhead cost to a product or department or to a job. Under this method the cost are allocated based on the activity volume consumed by each department or product. Activity based costing uses multiple activities related to cost and based on these activities cost is allocated.

Formula to calculate activity rate under activity based costing.