Question

A company has two products: A1 and B2 . 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 A1 Product B2
Activity 1 $ 62,000 2,600 6,160
Activity 2 $ 77,000 6,200 8,600
Activity 3 $ 108,000 3,640 2,200
Annual production and sales level of Product A1 9,880 units, and the annual production and sales level of Product B2 is 23,710 units. What is the approximate overhead cost per unit of Product B2 under activity - based costing?

Answer 1

Answer:

Unitary cost=  $5.44

Explanation:

The annual production and sales level of Product B2 is 23,710 units.

First, we need to calculate the activities rates:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Activity 1=  62,000/ (2,600 + 6,160)= $7.08 per unit of activity

Activity 2= 77,000/ (6,200 + 8,600)= $5.20 per unit of activity

Activity 3= 108,000 / (3,640 + 2,200)= $18.49 per unit of activity

Now, we allocate costs to Product B1:

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Activity 1=  7.08*6,160= 43,612.8

Activity 2= 5.20*8,600= 44,720

Activity 3= 18.49*2,200= 40,678

Total allocated costs= $129,010.8

Finally, the unitary cost:

Unitary cost= 129,010.8/23,710= $5.44