Question

Morrison Company manufactures two products: digital cameras and video cameras. The company uses an activity-based costing system. The annual production and sales volume of digital cameras is 10,000 units and of video cameras is 8,000 units. Direct costs for the digital cameras are $122; for the video cameras, direct costs are $153.

For overhead costs, there are three activity cost pools with the following expected activities and estimated total costs:
Activity Cost Pool Estimated Cost Expected Activity Digital Cameras Expected Activity Video Cameras Total
Activity 1$30,000 100 500 600
Activity 2 $45,000 600 300 900
Activity 3 $96,600 400 2,000 2,400
Refer to Morrison Company. Using ABC, the total cost per digital camera is approximately:
Please show calculations!

Answer 1

"$127.11 per unit" is the correct approach.

Step-by-step explanation:

The activity cost as per the questions will be:

Activity 1:

=
`(30,000)/(600)`

=
`50` ($)

Activity 2:

=
`(45000)/(900)`

=
`50` ($)

Activity 3:

=
`(96600)/(2400)`

=
`40.25` ($)

Now,

The overhead cost for digital cameras will be:

=
`(50* 100)+(50* 600)+(40.25* 400)`

=
`5000+30000+16.100`

=
`51100` ($)

Per unit overhead cost will be:

=
`(51100)/(10000)`

=
`5.11` ($)

hence,

The total cost will be:

=
`Direct \ costs+Indirect \ costs`

=
`122+5.11`

=
`127.11 \ per \ unit` ($)