Question

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?

Answer 1

Answer:

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