Roen Company incurred an activity cost of $105,600 for inspecting 40,000 units of production. Management determined that the inspecting objectives could be met without inspecting every unit. Therefore, rather than inspecting 40,000 units of production, the inspection activity was limited to a random selection of 5,000 units out of the 40,000 units of production. Determine the inspection activity cost per unit on 40,000 units of total production both before and after the improvement. If required, round per unit amounts to the nearest cent.

Inspection activity cost per unit on 40,000 units of total production:

1) Before Improvement is $2.64 per unit

2) After Improvement is $0.33 per unit

Explanation:

In order to calculate activity cost per unit we divide activity cost with the total number of units, as calculated below:

Activity cost / Number of Units = Activity cost per unit

105,600 / 40,000 = 2.64

Hence, the inspection activity cost per unit of the total production before improvement is $2.64 per unit.

Now, to determine the activity cost per unit after the improvement we first multiple the current cost per unit with the random sample to calculate the new cost.

Then we divide the new activity cost with the total number of units. This is shown below:

Random Sample of Units x Activity cost per unit = New activity cost

5,000 x 2.64 = $13,200

New activity cost / Number of total units = Activity cost per unit (After Improvement)

13,200 / 40,000 = $0.33

Hence, the inspection activity cost per unit of the total production after improvement is $0.33 per unit.