Lindsey Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 5,000 units and of Product B is 2,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:$\begin{array}{lrr}
&\text { Estimated}&& \text { Expected Activity }\
\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\
\text {Activity 1. } &£ 24,000& 200 &800 &1,000\
\text { Activity 2. } &£36,900 & 750 & 150 &900\
\text { Activity 3.} &£ 63,000 &1,000 &800&1,800\
\end{array}$

The cost per unit of Product A under activity-based costing is closest to

A)£14.11.
B)£13.77.
C)£7.00.
D)£17.70.

Question

Lindsey Company uses activity-based costing. The company has two products: A andB. The annual production and sales of Product A is 5,000 units and of Product B is 2,000 units. There are three activity cost pools, with estimated total cost and expected activity as follows:$\begin{array}{lrr}
&\text { Estimated}&& \text { Expected Activity }\
\text { Activity Cost Pool }&\text { cost }&\text { ProductA}&\text { Product B}&\text { Total }\ 
 \text {Activity 1.  } &£ 24,000& 200 &800 &1,000\
 \text { Activity 2. } &£36,900 & 750 & 150 &900\
 \text {  Activity 3.} &£ 63,000 &1,000 &800&1,800\
\end{array}$

The cost per unit of Product A under activity-based costing is closest to

A)£14.11.
B)£13.77.
C)£7.00.
D)£17.70.

Quizplus · Accepted Answer

The cost per unit of Product A under activity-based costing is calculated as follows:Total cost of Activity 1 = £24,000Activity rate for Activity 1 = £24,000 / 1,000 = £24 per activityCost of Activity 1 for Product A = £24 x 200 = £4,800Total cost of Activity 2 = £36,900Activity rate for Activity 2 = £36,900 / 900 = £41 per activityCost of Activity 2 for Product A = £41 x 750 = £30,750Total cost of Activity 3 = £63,000Activity rate for Activity 3 = £63,000 / 1,800 = £35 per activityCost of Activity 3 for Product A = £35 x 1,000 = £35,000Total cost of Product A = £4,800 + £30,750 + £35,000 = £70,550Cost per unit of Product A = £70,550 / 5,000 = £14.11Therefore, the cost per unit of Product A under activity-based costing is closest to £14.11.

Lindsey Company Uses Activity-Based Costing The Cost Per Unit of Product a Under Activity-Based Costing