Question

ng Company has established the following overhead cost pools and cost drivers for the month of May: Cost Pool Overhead Costs Cost Driver Levels Purchase orders $ 23,000 20 orders Machine setups 40,000 100 setups Electricity 26,000 26,000 kilowatt hours The following information pertains to the actual consumption of activity resources for two sample jobs completed during May. Job M1 Job M2 Number of units produced 590 1,000 Number of purchase orders 10 5 Number of setups 20 5 Number of kilowatt hours 590 1,000 Using ABC, what is the overhead cost per unit produced for Job M2?

Answer 1

	Activity rate=Overhead cost/Cost driver levels
	Cost pool		Overhead cost	Cost driver levels	Activity rate
			a	b	a/b
	Purchase orders		23000	20	1150	Per order
	machine setups		40000	100	400	Per setup
	Electricity		26000	26000	1	Per KWH
	Overhead allocated=Activity rate*Actual cost driver levels
	Overhead cost per unit:
						Job M2
	Purchase orders
	(Activity rate*Number of purchase orders)				(1150*5)	5750
	machine setups
	(Activity rate*Number of setups)				(400*5)	2000
	Electricity
	(Activity rate*Number of KWH)				(1*1000)	1000
	Total overhead cost				a	8750
	Number of units produced				b	1000
	Overhead cost per unit				a/b	8.75