Question

Q3.ABC corporation applying normal costing system has provided the following data from its activity-based costing system as follows: (Amounts in SAR)                                           [3 Marks]

Activities	Estimated Overhead Costs	Expected Cost Drivers Quantities	Cost Drivers
Assembly	120,500	10,000	Number of Machine Hours
Processing Orders	80,500	7,000	Number of Orders
Inspection	75,500	5,000	Number of Inspection Hours
Total	276,000	22,000

Actual Data concerning the company's product X appears below:

Annual unit production and sales 500 units

Annual machine hours 5,000

Annual number of orders   4,500

Annual inspection hours 3,000                                                                                                                

Direct material cost   150 per unit

Direct labor cost   100    per unit

Required:

Compute total costs per unit for the product X   using activity-based costing system      [3 Marks]         

Answer 1

Solution: Calculation of total costs per unit for the product X:

1. Calculation of Activity Cost rates:

Activities	Estimated Overhead Costs (a)	Expected Cost Drivers Quantities (b)	Cost per activity (a/b)
Assembly	$120,500	10,000	$12.05 per machine hour
Processing Orders	$80,500	7,000	$11.50 per order
Inspection	$75,500	5,000	$15.10 per inspection hour

2. Statement of Cost:

Activities	Cost per activity (c)	Activity Level (d)	Overhead cost (e=c*d)	Cost per unit (e/500)
Assembly	$12.05 per machine hour	5,000	$60,250	$120.5
Processing Orders	$11.50 per order	4,500	$51,750	$103.5
Inspection	$15.10 per inspection hour	3,000	$45,300	$90.6
Total Overhead Cost-			$157,300	$314.6

3. Total cost per unit for Product X:

Direct Material Cost	$150
Direct labor cost	$100
Total Overhead Cost	$314.6
Total cost per unit -	$564.6