Question

A company has two products: mini and regular. The company expects to produce 36,375 mini units and 35,957 regular units. It uses activity-based costing and has prepared the following analysis showing budgeted cost and cost driver activity for each of its three activity cost pools. Budgeted Activity of Cost Driver Activity Cost Pool Budgeted Cost Mini Regular Purchase Activity 1: Purchasing $ 98,415 Purchase 2,000 Orders 3,000 Orders Activity 2: $ 96,000 5,500 Designs 6,500 Designs Designing Activity 3: $ 88,000 3,000 Orders 5,000 Orders Shipping Total cost for mini units are $12,514 in materials and $23,000 in labor; total cost for regular units $14,923 in materials and $40,000 in labor. Compute overhead rates for each of the three activities. Question: What is the total cost per unit for the regular units? (Round activity rate and cost per unit answers to 2 decimal places.)

Answer 1

Solution:

Computation of activity rate and Allocation of overhead using ABC
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Mini	Regular
Usage	Allocated Costs	Usage	Allocated Costs
Purchasing	$98,415.00	Nos of Purchase orders	5000	$19.68	2000	$39,366	3000	$59,049
Designing	$96,000.00	Nos of designs	12000	$8.00	5500	$44,000	6500	$52,000
Shipping	$88,000.00	Nos of orders	8000	$11.00	3000	$33,000	5000	$55,000
Total	$282,415.00					$116,366.00		$166,049.00

Computation of unit cost of each product - Activity Based costing - Regular units
Particulars	Amount
Direct material	$14,923.00
Direct labor	$40,000.00
Manufacturing overhead	$166,049.00
Total costs	$220,972.00
Nos of units	35957
Unit product cost	$6.15