Question

A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools: Budgeted Activity Activity Cost Budgeted Product A Product B Pool Cost Activity 1 Activity 2 97,000 $72,000 4,000 3,800 5,500 6,500 $113,000 Activity 3 3,500 6,250 Annual production and sales level of Product A is 35,300 units, and the annual production and sales level of Product B is 70,550 units, What the approximate overhead f Product B under activity-based costing? cost per unit

Answer 1

Answer is $2.25

Calculated as

Calculation of Activity overhead rate
		Activity	Activity
Activity Cost Pool	Cost	Product A	Product B	Total Activity = A+B	Overhead Rate = Cost/Cost Driver
1	97000	4000	3800	7800	$                                                        12.44
2	72000	5500	6500	12000	$                                                          6.00
3	113000	3500	6250	9750	$                                                        11.59

Calculated of Overhead Cost of Product B
Activity Cost Pool	Overhead Rate		Activity
1	$    12.44	x	3800	=	$                                               47,256.41
2	$       6.00	x	6500	=	$                                               39,000.00
3	$    11.59	x	6250	=	$                                               72,435.90
Total overhead cost of 70550 units					$                                             158,692.31

Per unit overhead cost of Product B = $158692.31/70550=

$       2.25

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