Question

A company has two products: standard and deluxe. The company expects to produce 37,775 standard units and 63,640 deluxe units. It uses activity-based costing and has prepared the following analysis showing budgeted cost and cost driver activity for each of its three activity cost pools. Budgeted Activity of Cost Driver Activity Cost Pool Budgeted Cost Standard Deluxe Activity 1 $ 103,850 2,500 5,250 Activity 2 $ 106,000 4,500 5,500 Activity 3 $ 95,120 3,000 2,800 Required: 1. Compute overhead rates for each of the three activities. 2. What is the expected overhead cost per unit for the standard units

Answer 1

Answer:

Results are below.

Explanation:

First, we need to calculate the activity rates for each cost pool:

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

Activity 1= 103,850 / (2,500 + 5,250)= $13.4 per unit of activity

Activity 2= 106,000 / (4,500 + 5,500)= $10.6 per unit of activity

Activity 3= 95,120 / (3,000 + 2,800)= $16.4 per unit of activity

Now, we can allocate overhead to Standard:

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

Standard:

Activity 1= 13.4*2,500= $33,500

Activity 2= 10.6*4,500= $47,700

Activity 3= 16.4*3,000= $49,200

Total allocated costs= $130,400

Finally, the unitary cost:

Unitary cost= 130,400 / 37,775

Unitary cost= $3.45