Question

QUESTION 7 Jones company makes two products A & B. Here is some financial information about those products. A B Combined total cost of cost drivers Direct labor $45,000 $35,000 Direct materials $40,000 $30,000 Cost drivers Set ups 6 4 $10,000 Inspections 4 $5,000 Test Runs 12 $25,000 Units produced 1000 1000 Using ABC Costing for overhead, what is the unit cost for product A? $108 533 $980 O $106.50

Answer 1

Solution:

Computation of Activity rates
Cost driver	Cost assigned	Total activity level	Activity rate
Setups	$10,000	10	$1,000.00
Inspections	$5,000	10	$500.00
Test runs	$25,000	20	$1,250.00

Computation of Overhead assigned to product A
Activity cost pool	Activity level used	Activity rate	Cost assigned
Setups	6	1000.00	$6,000.00
Inspections	4	500.00	$2,000.00
Test runs	12	1250.00	$15,000.00
Total Overhead cost assigned			$23,000.00

Computation of Unit Product Cost Of Product A
	Product A
Direct labor	$45,000
Direct Materials	$40,000
Overhead Costs	$23,000
Total Costs	$1,08,000
No. of units	$1,000
Unit product Cost	$108

Hence, first option is correct.