Answer to Question #185884 in Accounting for foshix

Question

65) Annika Company uses activity-based costing. The company has two products: A and B. The

annual production and sales of Product A is 4,000 units and of Product B is 1,000 units. There

are three activity cost pools, with total cost and activity as follows:

Total Activity

Activity Cost Pool Total Cost Product A Product B Total

Activity 1 $ 18,000 700 300 1,000

Activity 2 $ 24,000 500 100 600

Activity 3 $ 60,000 800 400 1,200

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

A) $20.40

B) $10.00

C) $18.15

D) $17.00

Answer 1

Solution:

The activity-based costing cost per unit of Product A is closest to C). 18.15

 

Activity cost of Product A = $\frac{Total Activity}{Total Cost}$

Activity 1 = $\frac{700}{1000}\times 18,000 = \$12,600$

Activity 2 = $\frac{500}{600}\times 24,000 = \$20,000$

Activity 3 =$\frac{800}{1200}\times 60,000 = \$40,000$

Total cost of Product A = 12,600 + 20,000 + 40,000 = $72,600

To derive the cost per unit of Product A, we divide the total cost by the annual production and sales of Product A, which is 4,000 units.

= $\frac{72,600}{4000} = \$18.15$

The cost per unit of Product A = $18.15