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27 June, 23:39

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

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Answers (1)
  1. 28 June, 03:31
    0
    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
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