Question

Arntson, Inc., manufactures and sells two products: Product R3 and Product N0. The annual production and sales of Product of R3 is 600 units and of Product N0 is 300 units. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

	Expected Production	Direct Labor-Hours Per Unit	Total Direct Labor-Hours
Product R3	600	8.0	4,800
Product N0	300	4.0	1,200
Total direct labor-hours			6,000

The direct labor rate is $24.90 per DLH. The direct materials cost per unit is $206.00 for Product R3 and $225.00 for Product N0.

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

		Estimated		Expected Activity
Activity Cost Pools	Activity Measures	Overhead Cost		Product R3	Product N0	Total
Labor-related	DLHs	$	39,736	4,800	1,200	6,000
Production orders	orders		51,690	700	300	1,000
Order size	MHs		432,175	2,800	3,500	6,300
		$	523,601

The unit product cost of Product R3 under activity-based costing is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

A. $639.40 per unit

B. $433.40 per unit

C. $838.60 per unit

D. $1,044.60 per unit

Answer 1

Correct answer------------C. $838.60 per unit

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Labor related	Number of DLH	$ 39,736	6000	$               6.62	Per DLH
Production orders	Number of Order	$ 51,690	1000	$             51.69	Per Order
Order size	Number of MH	$ 432,175	6300	$             68.60	Per MH

.

Cost assigned to Product R3
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Labor related	$             6.62	4,800.00	$ 31,776.00
Production orders	$           51.69	700.00	$ 36,183.00
Order size	$           68.60	2,800.00	$ 192080.00
Total Overheads assigned			$           260,039.00
Production			600.00
Overhead cost per unit			$ 433.40

.

	Product R3
Direct material (8 x 24.90)	$                  199.20
Direct labor	$                  206.00
Overheads	$                  433.40
Total Cost per unit	$                  838.60