The unit product cost of Product B7 under activity-based costing is closest to:
A)$1,066.17 per unit
B)$692.82 per unit
C)$974.69 per unit
D)$890.20 per unit

Question

Quizplus · Accepted Answer

Using activity-based costing, we can calculate the unit product cost of Product B7 as follows:

Activity Cost Pool:
-Setup: $217,500
-Material handling: $563,200
-Machinery: $809,300
-Testing: $486,000
-Inspection: $288,000
-Other: $212,000
Total cost: $2,576,000

Activity Cost Drivers:
-Setup: 5,000 setups
-Material handling: 320,000 parts
-Machinery: 3,200 machine hours
-Testing: 6,000 tests
-Inspection: 12,000 inspection hours
-Other: 2,000 units of B7 produced
Total cost driver activity: 348,000

Activity Rates:
-Setup: $217,500 / 5,000 setups = $43.50 per setup
-Material handling: $563,200 / 320,000 parts = $1.76 per part
-Machinery: $809,300 / 3,200 machine hours = $253.53 per machine hour
-Testing: $486,000 / 6,000 tests = $81.00 per test
-Inspection: $288,000 / 12,000 inspection hours = $24.00 per inspection hour
-Other: $212,000 / 2,000 units = $106.00 per unit of B7 produced

Unit Product Cost of B7:
-Setup: 20 setups * $43.50 per setup = $870
-Material handling: 800 parts * $1.76 per part = $1,408
-Machinery: 320 machine hours * $253.53 per machine hour = $81,130
-Testing: 20 tests * $81.00 per test = $1,620
-Inspection: 10 inspection hours * $24.00 per inspection hour = $240
-Other: 1 unit * $106.00 per unit = $106
Total unit product cost: $84,374
Unit product cost per unit: $84,374 / 79 units = $1,066.17 per unit

Therefore, the closest unit product cost of Product B7 obtained by using activity-based costing is option A) $1,066.17 per unit. Computation of activity rates: 11ea7998_5ea4_a610_911b_1977595cd1ef_TB2627_00_TB2627_00 Computation of the overhead cost per unit under activity-based costing. 11ea7998_5ea4_cd21_911b_3fc9502293c6_TB2627_00_TB2627_00 Computation of unit product costs under activity-based costing. 11ea7998_5ea4_f432_911b_d1bf90aef9c1_TB2627_00_TB2627_00

The Unit Product Cost of Product B7 Under Activity-Based Costing