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	$	102,000			4,500			4,300
Activity 2	$	77,000			6,000			7,000
Activity 3	$	123,000			4,000			6,750

Annual production and sales level of Product A is 35,800 units, and the annual production and sales level of Product B is 71,050 units. What is the approximate overhead cost per unit of Product A under activity-based costing?

Multiple Choice

• $3.73

• $1.56

• $2.37

• $10.27

• $11.59

Answer 1

	(iv)	(i)	(ii)	(iii) = (i) + (ii)	(v) = (iv)/(iii)	(i) x (v)
Activity Cost Pool	Budgeted Cost	Product A	Product B	Total Budgeted Activity	Activity Rate	Overhead allocated to Product A
Activity 1	102,000	4,500	4,300	8,800	11.59090909	52,159
Activity 2	77,000	6,000	7,000	13,000	5.923076923	35,538
Activity 3	123,000	4,000	6,750	10,750	11.44186047	45,767
Total						133,465

Units produce of Product A = 35,800

Total cost allocated to Product A = $133,465

Overhead cost per unit of Product A = Total cost allocated to Product A/ Units produce of Product A

= 133,465/35,800

= $3.73

The approximate overhead cost per unit of Product A under activity-based costing is $3.73

First option is correct.