Question

Arntson, Inc., manufactures and sells two products: Product R3 and Product N0. The annual production and sales of Product of R3 is 200 units and of Product N0 is 100 units. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below: Expected ProductionDirect Labor-Hours Per UnitTotal Direct Labor-Hours Product R32008.01,600 Product N010011.01,100 Total direct labor-hours 2,700 The direct labor rate is $15.80 per DLH. The direct materials cost per unit is $287.80 for Product R3 and $104.80 for Product N0. The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity: EstimatedExpected Activity Activity Cost PoolsActivity MeasuresOverhead CostProduct R3Product N0Total Labor-relatedDLHs$39,6361,6001,1002,700 Production ordersorders 57,4216007001,300 Order sizeMHs 432,0753,6003,9007,500 $529,132 The unit product cost of Product N0 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.) Select one: A. $2,042.37 per unit B. $2,434.27 per unit C. $2,996.06 per unit D. $2,525.39 per unit

Answer 1

Answer:

C.$2,996.06 per unit

Explanation:

Calculation to determine what The unit product cost of Product N0 under activity-based costing is closest to:

First step is to Compute the activity rates

Activity Cost (a)Estimated Overhead cost (b)Total Expected Activity (a) ÷(b)Activity Rate

Labor-related $39,636÷2,700DLHs=$14.68per DLH

Production orders $57,421÷ 1,300orders =$44.17per order

Order size $432,075 ÷7,500MHs =$57.61per MH

Second step is to Compute the overhead cost per unit under activity-based costing

Using this formula

Overhead cost per unit=Activity Cost Pools and Activity Rates*Expected Activity=Amount

Let plug in the formula

Product N0

Labor-related, at $14.68 per DLH *1,100 =$16,148

Production orders, at $44.17 per order *700 =$30,919

Order size, $57.61 per MH *3,900 =$224,679

Total overhead costs assigned (a)$271,746

($16,148+$30,919+$224,679)

Number of units produced (b)100

Overhead cost per unit (a) ÷ (b)$2,717.46

($271,746÷100)

Third step is to Compute the unit product costs under activity-based costing

Product N0

Direct materials $104.80

Direct labor $173.80

(11.0 DLHs × $15.80 per DLH)

Overhead $2,717.46

Unit product cost $2,996.06

($104.80+$173.80+$2,717.46)

Therefore The unit product cost of Product N0 under activity-based costing is closest to: $2,996.06