A company has two products: A1 and B2. It uses activity-based
costing and has prepared the following analysis showing budgeted
cost and activity for each of its three activity cost
pools:
| Budgeted Activity | |||||||||
| Activity Cost Pool | Budgeted Cost | Product A1 | Product B2 | ||||||
| Activity 1 | $ | 59,000 | 2,300 | 5,900 | |||||
| Activity 2 | $ | 74,000 | 3,340 | 5,860 | |||||
| Activity 3 | $ | 102,000 | 8,300 | 1,900 | |||||
Annual production and sales level of Product A1 is 9,580 units, and
the annual production and sales level of Product B2 is 23,410
units. What is the approximate overhead cost per unit of Product B2
under activity-based costing?
Multiple Choice
$7.20
$8.04
$10.00
$13.20
$4.64
Activity rates
Activity rate for Activity 1 = $7.20 [$59,000 / (2,300+5,900)]
Activity rate for Activity 2 = $8.04 [$74,000 / (3,340+5,860)]
Activity rate for Activity 3 = $10.00 [$102,000 / (8,300+1,900)]
Total Overhead Cost
The Total Overhead Cost = [5,900 x $7.20] + [5,860 x $8.04] + [1,900 x $10.00]
= $42,451 + $47,135 + $19,000
= $108,586
The overhead cost per unit of Product B2 under activity-based costing
Therefore, the overhead cost per unit of Product B2 = Total Overhead costs / Number of units
= $108,586 / 23,410 units
= $4.64
Hence, the overhead cost per unit of Product B2 will be $4.64
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