Question

Swanson Company has identified the following activities related to indirect production costs: Activity Activity Costs Cost Drivers Machine Setup $180,000 1,500 Setup Hours Materials Handling $50,000 12,500 pounds of materials Electric Power $20,000 20,000 Kilowatt hours Swanson Company has obtained the following data concerning two products: Product 1 Product 2 Number of units produced 4,000 20,000 Direct Material Cost $20,000 $25,000 Direct Labor Cost $12,000 $20,000 Number of setup hours 100 120 Pounds of materials used 500 1,500 Kilowatt-hours 1,000 2,000 Using Activity Based Costing, what is the total production cost per unit for Product 1

Answer 1

Unitary cost= $11.75

Step-by-step explanation:

First, we need to calculate the predetermined overhead rate for each activity:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Machine Setup= 180,000/1,500= $120 per set up hour

Materials Handling= 50,000/12,500= $4 per pound

Electric Power= 20,000/20,000= $1 per kilowatt hour

Product 1:

Number of units produced 4,000

Direct Material Cost $20,000

Direct Labor Cost $12,000

Number of setup hours 100

Pounds of materials used 500

Kilowatt-hours 1,000

Now, we can determine the total cost for Product 1:

Total cost= 20,000 + 12,000 + (120*100 + 4*500 + 1*1,000)

Total cost= $47,000

Finally, the unitary cost:

Unitary cost= 47,000/4,000

Unitary cost= $11.75