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16 January, 05:03

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: Budgeted Activity Activity Cost Pool Budgeted Cost Product A Product B Activity 1 $ 98,000 4,100 3,900 Activity 2 $ 73,000 5,600 6,600 Activity 3 $ 115,000 3,600 6,350 Annual production and sales level of Product A is 35,400 units, and the annual production and sales level of Product B is 70,650 units. What is the approximate overhead cost per unit of Product B under activity-based costing?

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  1. 16 January, 06:16
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    The approximate overhead cost per unit of Product B under activity-based costing is $2.23 cost per unit

    Explanation:

    For computing the overhead cost per unit, first, we have to compute the allocation cost of product B for each activity which is shown below.

    For Activity 1 = (Budgeted Cost * Product B) : (Product A + Product B)

    = ($98,000 * $3,900) : ($4,100 + $3,900)

    = $47,775

    For Activity 2 = (Budgeted Cost * Product B) : (Product A + Product B)

    = ($73,000 * $6,600) : ($5,600 + $6,600)

    = $36,500

    For Activity 3 = (Budgeted Cost * Product B) : (Product A + Product B)

    = ($115,000 * $6,350) : ($3,600 + $6,350)

    = $73,392

    Total cost = Activity 1 cost + Activity 2 cost + Activity 3 cost

    = $47,775 + $36,500 + $73,392

    = $157,667

    Now the overhead cost per unit equals to

    = Total cost : number of units in Product B

    = $157,667 : 70,650 units

    = $2.23 cost per unit
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