Question

Q3.ABC corporation applying normal costing system has provided the following data from its activity-based costing system...

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]         

Homework Answers

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
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