Question

Paparo Corporation has provided the following data from its activity-based costing system: 4 Activity Cost Pool Assembly Processing orders Inspection Total Cost Total Activity $ 872,100 51,000 machine-hours $ 77,000 2,000 orders $ 113,337 1,470 inspection-hours Data concerning the company's product Q79Y ar below: Annual unit production and sales Annual machine-hours Annual number of orders Annual inspection hours Direct materials cost Direct labor cost 700 1,170 135 40 $ 46.00 per unit $41.39 per unit According to the activity-based costing system, the average cost of product Q79Y is closest to:

Answer 1

Answer :-

The correct answer is Option A - $127.80 per unit

Explanation :-

First we find out the activity rate :-

Activity cost pool	Total cost	Total activity	Activity rate (Total cost / Total activity)
Assembly	$872,100	51,000 machine hours	$17.1 per machine hour ( $872,100 / 51,000)
Processing orders	$77,000	2,000 orders	$38.5 per order ($77,000 / 2,000)
Inspection	$113,337	1,470 inspection hours	$77.1 per inspection hours ($113,337 / 1,470)

Therefore, the average cost of product Q79Y is -

Average Cost of Product Q79Y = Direct Material cost per unit + Direct Labor Per unit + Overhead per unit

Direct Material cost per unit = $46.00

Direct labor cost per unit = $41.39

Overhead per unit = Total Overhead / No. Of unit produced

Total overhead = ( Annual machine hours × Rate per machine hours ) + ( Annual no. of order × Rate per no. of order ) + ( Annual inspection hours × Rate per inspection hours)

Total Overhead = (1,170 × $17.1) + ( 135 × $38.5) + ( 40 × $77.1)

Total Overhead = $20,007 + $5,197.5 + $3,084

Total Overhead = $28,288.5

Overhead per unit = $28,288.5 / 700

Overhead per unit = $40.41

Average Cost of Product Q79Y = $46.00 + $41.39 + $40.41

Average Cost of Product Q79Y = $127.80 per unit