Question

Annika Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There are three activity cost pools, with total cost and activity as follows:
Total Activity
Activity Cost Pool Total Cost Product A Product B Total
Activity 1 $ 18,000 700 300 1,000
Activity 2 $ 24,000 500 100 600
Activity 3 $ 60,000 800 400 1,200

The activity-based costing cost per unit of Product A is closest to:

Answer 1

Answer:

$18.15

Explanation:

Activity based costing is a costing techniques used to assign cost in management account to the various units of a company the estimated activity level in the departments as a basis for cost apportionment or allocation.

Given that

Cost Pool    Total Cost     Product A    Product B   Total  Activity

Activity 1      $ 18,000        700                   300          1,000

Activity 2     $ 24,000       500                   100           600

Activity 3     $ 60,000       800                   400          1,200

The total cost for product A

= 700/1000 * $18,000 + 500/600 * $24,000 + 800/1200 * $60000

= $12,600 + $20,000 + 40,000

= $72,600

Total units for A = 4000 units

cost per unit of Product A is closest to

= $72,600/4000

= $18.15