Question

A company has two products: A and B. 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 A		Product B
Activity 1	$	87,000		3,000		2,800
Activity 2	$	62,000		4,500		5,500
Activity 3	$	93,000		2,500		5,250

Annual production and sales level of Product A is 34,300 units, and the annual production and sales level of Product B is 69,550 units. What is the approximate overhead cost per unit of Product A under activity-based costing?

Multiple Choice

• $2.00

• $15.00

• $10.28

• $2.33

• $3.00

Answer 1

		Budgeted Activity
Activity Cost Pool	Budgeted Cost	Product A	Product B	Total Activity (Activity of Product A+ Activity of Product B)	Activity Rate (Budgeted Cost/Total Activity)	Cost allocated to product A (Activity Rate x Product A activity)
Activity 1	87,000	3,000	2,800	5,800	15	3,000 x 15 = 45,000
Activity 2	62,000	4,500	5,500	10,000	6.2	4,500 x 6.2 = 27,900
Activity 3	93,000	2,500	5,250	7,750	12	2,500 x 12 = 30,000
						102,900

Overhead cost per unit of product A = Total overheads allocated to product A / Number of units of product A

= 102,900/34,300

= $3 per unit

Fifth option is correct.

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