Question

You are considering adopting an activity based costing model in your organization. Two activity pools are machine setup costing $30,000 and material moves costing $45,000. The measure for each is the number of occurrences which are 200 and 450 for machine setups and material moves, respectively. Product XJ500 requires 25 setups and 40 material moves. What is the per unit ABC cost assuming 100 units produced?

	a.	$450.00
	b.	$115.38
	c.	$77.50
	d.	$90.45

Answer 1

Solution:

Computation of Activity rate
Activity	Cost	Cost driver	Usage of cost driver	Allocation Rate
Machine Setup	$30,000.00	Nos of machine setups	200	$150.00
Material Moves	$45,000.00	Nos of material moves	450	$100.00

Computation of per unit ABC cost for XJ 500
Particulars	Amount
Machine setup cost (25*$150)	$3,750.00
Material moves cost (40*$100)	$4,000.00
Total Cost	$7,750.00
Nos of unit produced	$100.00
Cost per unit	$77.50

Hence option C is correct.