Ravelo Corporation has provided the following data from its activity-based costing system: Data concerning the company's product L19B appear below: According to the activity-based costing system, the unit product cost of product L19B is closest to:
A)$48.19 per unit
B)$82.31 per unit
C)$85.56 per unit
D)$77.53 per unit

Question

Ravelo Corporation has provided the following data from its activity-based costing system:  Data concerning the company's product L19B appear below:  According to the activity-based costing system, the unit product cost of product L19B is closest to:
A)$48.19 per unit 
B)$82.31 per unit 
C)$85.56 per unit 
D)$77.53 per unit

Quizplus · Accepted Answer

Using the activity-based costing system, the total cost per unit of product L19B is calculated as follows:

Activity Cost Pool (and Driver) | Estimated Overhead Costs | Estimated Driver Activity | Overhead Cost per Driver
---|---|---|---
Activity 1: Machine setups (setup hours) | $328,000 | 8,000 setup hours | $41 per setup hour
Activity 2: Material handling (number of parts) | $270,000 | 600,000 parts | $0.45 per part
Activity 3: Quality control (inspection hours) | $180,000 | 3,000 inspection hours | $60 per inspection hour
Activity 4: Other (direct labor costs) | $350,000 | $1,750,000 direct labor costs | 20% of direct labor cost

Using the driver volumes for product L19B:

Driver | Activity Quantity per Unit of Product L19B
---|---
Number of setups | 2
Number of parts | 800
Number of inspection hours | 3
Direct labor cost | $40

Therefore, the total cost per unit of product L19B is calculated as follows:

Activity | Driver Volume per Unit | Overhead Cost per Driver | Total
---|---|---|---
Machine setups | 2 setup hours | $41 per setup hour | $82
Material handling | 800 parts | $0.45 per part | $360
Quality control | 3 inspection hours | $60 per inspection hour | $180
Other | $40 direct labor cost | 20% of direct labor cost | $8
Total | | | $630

Therefore, the unit product cost of product L19B using the activity-based costing system is closest to $85.56 per unit. The activity rates for each activity cost pool are computed as follows: 11ea7998_5e90_0d18_911b_6b2ab9615af5_TB2627_00_TB2627_00 The overhead cost charged to Product L19B is: 11ea7998_5e90_3429_911b_119b3c806975_TB2627_00_TB2627_00 11ea7998_5e90_342a_911b_71a9009dd9a1_TB2627_00_TB2627_00 Unit product cost = $36,789.50 ÷ 430 units = $85.56 per unit

Ravelo Corporation Has Provided the Following Data from Its Activity-Based