24. RS Company manufactures and distributes two products, R and S. Overhead cost

Question

24. RS Company manufactures and distributes two products, R and S. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information: Cost Driver Number of setups Number of parts Number of units Activity Amount S 82.000 48,000 130,000 Production setups 12 24 Material handling 56 Packaging costs 80,00050,000 $260,000 What is the total overhead per unit allocated to Product S using activity-based costing (ABC) A. $2.60 B. $2.27. C. $2.00. D. $1.83.

Explanation / Answer

Activity Amount Total activity driver Activity rate Production setups 82000 20 4100 Materials handling 48000 80 600 Packaging costs 130000 130000 1 Product S Production setups 49200 =12*4100 Materials handling 14400 =24*600 Packaging costs 50000 =50000*1 Total overhead 113600 Divided by units 50000 Overhead per unit 2.27 Option B is correct

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