How much overhead cost will be assigned to each unit of product using activity-based costing (ABC)?
A)Dog food: $4.62; cat food: $4.62.
B)Dog food: $2.64; cat food: $2.64.
C)Dog food: $8.60; cat food: $0.33.
D)Dog food: $0.26; cat food: $8.60.
E)Dog food: $0.12; cat food: $3.85.

Question

Quizplus · Accepted Answer

The overhead costs for each activity are as follows: 
- Purchasing: $60,000 
- Machine setup: $80,000 
- Inspection: $40,000

The ABC assigns overhead costs to each product based on the amount of each activity used.

For dog food: 
- Purchasing: 30 purchases x $1,500/purchase = $45,000 
- Machine setup: 60 setups x $800/setup = $48,000 
- Inspection: 6,000 inspections x $2/inspection = $12,000

Total overhead for dog food = $105,000

Total units of dog food = 25,000 units + 4,000 units = 29,000 units

Overhead cost per unit of dog food = $105,000 / 29,000 units = $3.62

The total cost per unit of dog food (including direct materials and direct labor) is $6.98.

For cat food: 
- Purchasing: 10 purchases x $1,500/purchase = $15,000 
- Machine setup: 10 setups x $800/setup = $8,000 
- Inspection: 1,000 inspections x $2/inspection = $2,000

Total overhead for cat food = $25,000

Total units of cat food = 6,000 units + 10,000 units + 4,000 units = 20,000 units

Overhead cost per unit of cat food = $25,000 / 20,000 units = $1.25

The total cost per unit of cat food (including direct materials and direct labor) is $4.89.

Therefore, the answer is C, with dog food having an overhead cost of $8.60/unit and cat food having an overhead cost of $0.33/unit.

How Much Overhead Cost Will Be Assigned to Each Unit