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 estimated total cost and expected activity as follows:
Expected Activity

Activity Cost Pool Estimated Costs Product A Product B Total

Activity 1 $18,000 700 300 1,000Activity 2$24,000500 100 600Activity 3 $60,0008004001,200

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

Answer
a. $20.40
b. $18.15
c. $17.00
d. $10.00

Answer 1

AnswerThe answer is $18.15

Explanation

Activity cost of project A / Total Activity × Total Cost

700/ 1000 × 18,000

= $12,600

500/600 × 24,000

= $20,000

800/1,200 × 60,000

= $40,000

Total cost = $12,600 + $20,000 + $40,000 = $ 72,600

To calculate cost per unit of product A, we divide the total cost by the annual production and sales of product A

= 72,600/4,000

= 18.15

Therefore the cost per unit of product A = $18.15

Answer 2

Answer:

b. $18.15

Explanation:

Toatal money spent on product A is:

Activity 1: 700/1000*18000 = $12600

Activity 2: 500/600*24000 = $20000

Activity 3: 800/1200*60000 = $40000

Total money spent on product A = $12600 + $20000 + $40000

                                                       = $72600

Total units of product A formed = 4000

Cost per product = $72600/4000 =  $18.15

Therefore, The cost per unit of Product A under activty-based costing is closest to  $18.15.