Question

Exercise 4-3 Compute ABC Product Costs [LO4-3]

Larner Corporation is a diversified manufacturer of industrial goods. The company's activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Labor-related	$	7.00	per direct labor-hour
Machine-related	$	4.00	per machine-hour
Machine setups	$	50.00	per setup
Production orders	$	100.00	per order
Shipments	$	150.00	per shipment
General factory	$	4.00	per direct labor-hour

  

Cost and activity data have been supplied for the following products:

  

	J78				B52
Direct materials cost per unit	$	3.00			$	20.00
Direct labor cost per unit	$	3.00			$	6.00
Number of units produced per year		2,000				100

	Total Expected Activity
		J78			B52
Direct labor-hours		1,000			20
Machine-hours		2,000			50
Machine setups		6			3
Production orders		5			3
Shipments		8			3

Required:

Compute the unit product cost of each product listed above.(Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Answer :

Computation of Unit product cost

	J78	B52
Direct Material	$ 3	$ 20
Direct Labor	$ 3	$ 6
Overhead assigned	$ 10.50	$ 13.20
Unit product cost	$ 16.50	$ 39.20

Working note -1

Computation of overhead cost per unit under ABC Costing

	J 78	B 52
Overhead cost	( Activity rate * Total expected Activity)	( Activity rate * Total expected Activity)
Labor related	$ 7000 ( $ 7 *1000)	$ 140 ( $ 7 * 20)
Machine related	$ 8000 ( $ 4 *2000)	$ 200 ( $ 4 *50)
Machine set up	$ 300 ( $ 50*6)	$ 150 ( $ 50*3)
Production order	$ 500 ( $ 100 *5)	$ 300 ( 100*3)
Shipment	$ 1200 ( 150*8)	$ 450 ( 150*3)
General Factory	$ 4000 ( $ 4*1000)	$ 80 ( $ 4*20)
Total overhead cost (a)	$ 21000	$ 1320
Number of unit produced (b)	2000	100
Overhead assigned per unit (a) / (b)	$ 10.50	$ 13.20