Ellis Company Ellis Company uses activity-based costing.The company produces two products: IPods and MP3 players.The annual production and sales volume of IPods is 8,000 units and of MP3 players is 6,000 units.There are three activity cost pools with the following expected activities and estimated total costs:

Activity Cost Pool Estimated Cost Expected Activity IPods Expected Activity MP3 players Total

Activity 1 $20,000 100 400 500

Activity 2 $37,000 800 200 1,000

Activity 3 $91,200 800 3,000 3,800

Refer to Ellis Company.Using ABC,the cost per unit of MP3 players is approximately: A)$ 2.40 B)$ 3.90 C)$12.00 D)$15.90

Question

Ellis Company
Ellis Company uses activity-based costing.The company produces two products: IPods and MP3 players.The annual production and sales volume of IPods is 8,000 units and of MP3 players is 6,000 units.There are three activity cost pools with the following expected activities and estimated total costs:

Activity Cost Pool	Estimated Cost	Expected Activity IPods	Expected Activity MP3 players	Total
Activity 1	$20,000	100	400	500
Activity 2	$37,000	800	200	1,000
Activity 3	$91,200	800	3,000	3,800

Refer to Ellis Company.Using ABC,the cost per unit of MP3 players is approximately: A)$ 2.40 B)$ 3.90 C)$12.00 D)$15.90

Quizplus · Accepted Answer

To calculate the cost per unit of MP3 players using Activity-Based Costing (ABC), we first allocate the total costs to each product based on their expected activities for each activity cost pool. Then, we divide the total allocated costs for MP3 players by the number of MP3 units (6,000) to find the cost per unit.1. Activity 1: $20,000 total cost, 400/500 of activity related to MP3 players, so $20,000 * (400/500) = $16,000 allocated to MP3 players.2. Activity 2: $37,000 total cost, 200/1000 of activity related to MP3 players, so $37,000 * (200/1000) = $7,400 allocated to MP3 players.3. Activity 3: $91,200 total cost, 3000/3800 of activity related to MP3 players, so $91,200 * (3000/3800) = $72,000 allocated to MP3 players.Total allocated cost for MP3 players = $16,000 + $7,400 + $72,000 = $95,400.Cost per unit for MP3 players = $95,400 / 6,000 units = $15.90.

Ellis Company Ellis Company Uses Activity-Based Costing.The Company Produces Two Products: IPods