Question

ABC Inc. produces a single product and manufactured 20,000 units and sold 10,000 units last year. ABC had a practical production capacity of 20,000 units per year. The company budgeted the following overhead costs for the year:

Indirect Factory Wages:	$140,000
Factory Utilities:	$ 50,000
Factory Depreciation:	$ 10,000

Direct manufacturing costs per unit are $100. The company uses an activity-based costing system which compiles costs into 3 cost pools, machining, milling and assembly. The costs allocated to these activity cost pools break down as follows:

Usage:

Cost:	Machining	Milling	Assembly
Indirect Factory Wages:	50%	30%	20%
Factory Utilities:	40%	40%	20%
Factory Depreciation:	10%	90%	0%

The following cost drivers are used for each of the following activity cost pools:

• Machining: Machine Hours
• Milling: Milling Hours
• Assembly: Direct Labour Hours.

Practical and expected capacity for each of the cost pools are shown below:

• Machining: 45,500 Machine Hours.
• Milling: 71,000 Milling Hours.
• Assembly: 38,000 Direct Labour Hours.

Actual Usage was as follows:

• Machining: 40,000 Machine Hours.
• Milling: 80,000 Milling Hours.
• Assembly: 15,000 Direct Labour Hours.

Each unit requires a budgeted 2 Machine Hours, 1 Milling Hour and 4 Direct Labour Hours.

ABC's policy is to charge $84 per unit.

ABC's cost per unit using traditional costing was:

Answer 1