Question

A company has two products: A1 and B2. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools: Budgeted Activity Activity Cost Pool Budgeted Cost Product A1 Product B2 Activity 1 $ 63,000 2,700 6,300 Activity 2 $ 78,000 3,740 6,260 Activity 3 $ 110,000 8,700 2,300 Annual production and sales level of Product A1 is 9,980 units, and the annual production and sales level of Product B2 is 23,810 units. What is the approximate overhead cost per unit of Product A1 under activity-based costing?

Answer 1

To find the overhead cost per unit of Product A1 under activity-based costing, you need to divide the total budgeted cost for each activity by the annual production and sales level of Product A1. The approximate overhead cost per unit of Product A1 is $2.96.

Step-by-step explanation:

Activity-based costing is a method of assigning costs to products or services based on the activities required to produce them. To find the overhead cost per unit of Product A1, we need to divide the total budgeted cost of the three activity cost pools by the annual production and sales level of Product A1. First, calculate the total budgeted cost for each activity by summing up the costs for Product A1 and Product B2. Then, divide each activity's total cost by the annual production and sales level of Product A1. Finally, sum up the results to get the approximate overhead cost per unit of Product A1.

Here's the calculation:

1. Activity 1: ($2,700 + $6,300) / 9,980 = $0.92 per unit
2. Activity 2: ($3,740 + $6,260) / 9,980 = $1.00 per unit
3. Activity 3: ($8,700 + $2,300) / 9,980 = $1.04 per unit

Approximate overhead cost per unit of Product A1 under activity-based costing: $0.92 + $1.00 + $1.04 = $2.96 per unit

Answer 2

The overhead cost per unit of product A1 under activity based costing is $13.53

Step-by-step explanation:

Activity 1 allocated to product A1 line: $63,000*2,700/9,000= $18,900

Activity 2 allocated to product A1 line: $78,000*3,740/10,000= $29,172

Activity 3 allocated to product A1 line: $110,000*8,700/11,000= $87,000

Total overhead allocated to product A1= $18,900+$29,172+$87,000= $135,072

Overhead per unit of product A1: 135,072/9,980= $13.53