Barnett Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe.The company, which uses activity-based costing, has identiﬁed ﬁve activities (and related cost drivers).Each activity, its budgeted cost, and related cost driver is identiﬁed below. The following information pertains to the three product lines for next year: Under Barnett's activity-based costing system, what is the per-unit overhead cost of Economy?
A)$141.
B)$164.
C)$225.
D)$228.
E)None of the answers is correct.

Question

Barnett Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe.The company, which uses activity-based costing, has identiﬁed ﬁve activities (and related cost drivers).Each activity, its budgeted cost, and related cost driver is identiﬁed below.  The following information pertains to the three product lines for next year:  Under Barnett's activity-based costing system, what is the per-unit overhead cost of Economy?
A)$141. 
B)$164. 
C)$225. 
D)$228. 
E)None of the answers is correct.

Quizplus · Accepted Answer

Using activity-based costing, first identify the total cost of each activity for the year:
Activity 1:
Budgeted Cost = $360,000
Cost Driver = Number of setups = 1,500
Cost per setup = $360,000 ÷ 1,500 = $240
Activity 2:
Budgeted Cost = $500,000
Cost Driver = Number of inspections = 10,000
Cost per inspection = $500,000 ÷ 10,000 = $50
Activity 3:
Budgeted Cost = $240,000
Cost Driver = Number of machine hours = 20,000
Cost per machine hour = $240,000 ÷ 20,000 = $12
Activity 4:
Budgeted Cost = $600,000
Cost Driver = Number of orders = 15,000
Cost per order = $600,000 ÷ 15,000 = $40
Activity 5:
Budgeted Cost = $400,000
Cost Driver = Number of shipments = 5,000
Cost per shipment = $400,000 ÷ 5,000 = $80

Next, use these activity costs to calculate the overhead cost per unit for each product:
Economy:
Activity 1: 500 setups × $240 per setup = $120,000
Activity 2: 10,000 inspections × $50 per inspection = $500,000
Activity 3: 40,000 machine hours × $12 per machine hour = $480,000
Activity 4: 2,500 orders × $40 per order = $100,000
Activity 5: 1,000 shipments × $80 per shipment = $80,000
Total overhead cost for Economy = $1,280,000
Total units for Economy = 8,000
Overhead cost per unit for Economy = $1,280,000 ÷ 8,000 = $160
Standard:
Activity 1: 800 setups × $240 per setup = $192,000
Activity 2: 20,000 inspections × $50 per inspection = $1,000,000
Activity 3: 60,000 machine hours × $12 per machine hour = $720,000
Activity 4: 2,000 orders × $40 per order = $80,000
Activity 5: 2,000 shipments × $80 per shipment = $160,000
Total overhead cost for Standard = $2,152,000
Total units for Standard = 10,000
Overhead cost per unit for Standard = $2,152,000 ÷ 10,000 = $215.20
Deluxe:
Activity 1: 1,200 setups × $240 per setup = $288,000
Activity 2: 30,000 inspections × $50 per inspection = $1,500,000
Activity 3: 100,000 machine hours × $12 per machine hour = $1,200,000
Activity 4: 4,000 orders × $40 per order = $160,000
Activity 5: 2,000 shipments × $80 per shipment = $160,000
Total overhead cost for Deluxe = $3,308,000
Total units for Deluxe = 5,000
Overhead cost per unit for Deluxe = $3,308,000 ÷ 5,000 = $661.60

Therefore, the per-unit overhead cost for Economy is $160. Answer: B

Barnett Products Manufactures Three Types of Remote-Control Devices: Economy, Standard