Question

A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools: 95,000 70,000 109,000.
Budgeted Activity
Activity Cost Budgeted Product A Product B
Pool Cost
Activity 1 $95,000 3,800 3,600
Activity 2 $70,000 5,300 6,300
Activity 3 $109,000 3,300 6,050
Annual production and sales level of Product A is 35,100 units, and the annual production and sales level of Product B is 70,350 units. What is the approximate overhead cost per unit of Product B under activity-based costing?
a. $3.40
b. $2.20
c. $10.28
d. $12.84
e. $1.87

Answer 1

Answer:

Unitary overhead cost= $2.2

Explanation:

Giving the following information:

Activity Cost Budgeted Product A Product B

Activity 1 $95,000 3,800 3,600

Activity 2 $70,000 5,300 6,300

Activity 3 $109,000 3,300 6,050

The annual production and sales level of Product B is 70,350 units.

First, we need to calculate the predetermined overhead rate for each activity cost pool. We will use the following formula:

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

Activity 1= 95,000/ (3,800 + 3,600)= $12.84

Activity 2= 70,000/ (5,300 + 6,300)= $6.03

Activity 3= 109,000/ (3,300 + 6,050)= $11.66

Now, we need to calculate the total allocated overhead for product B:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Product B= 12.84*3,600 + 6.03*6,300 + 11.66*6,050= $154,756

Unitary overhead cost= 154,756/70,350= $2.2