Question

Morrison Company manufactures two products: digital cameras and video cameras. The company uses an activity-based costing system. The annual production and sales volume of digital cameras is 10,000 units and of video cameras is 8,000 units. Direct costs for the digital cameras are $122; for the video cameras, direct costs are $153.
For overhead costs, there are three activity cost pools with the following expected activities and estimated total costs:
Activity Cost Pool Estimated Cost Expected Activity Digital Cameras Expected Activity Video Cameras Total
Activity 1$30,000 100 500 600
Activity 2 $45,000 600 300 900
Activity 3 $96,600 400 2,000 2,400
Refer to Morrison Company. Using ABC, the total cost per digital camera is approximately:
Please show calculations!

Answer 1

Answer:

"$127.11 per unit" is the correct approach.

Explanation:

The activity cost as per the questions will be:

Activity 1:

= $\frac{30,000}{600}$

= $50$ ($)

Activity 2:

= $\frac{45000}{900}$

= $50$ ($)

Activity 3:

= $\frac{96600}{2400}$

= $40.25$ ($)

Now,

The overhead cost for digital cameras will be:

= $(50\times 100)+(50\times 600)+(40.25\times 400)$

= $5000+30000+16.100$

= $51100$ ($)

Per unit overhead cost will be:

= $\frac{51100}{10000}$

= $5.11$ ($)

hence,

The total cost will be:

= $Direct \ costs+Indirect \ costs$

= $122+5.11$

= $127.11 \ per \ unit$ ($)