Bassanova Company has two products: A and B. The annual production and sales lev
ID: 2347510 • Letter: B
Question
Bassanova Company has two products: A and B. The annual production and sales level of Product A is 18,000 units. The annual production and sales level of Product B is 32,000. The company uses activity-based costing and has prepared the following analysis showing the estimated total cost and expected activity for each of its three activity cost pools:Expected Activity
Activity Cost Pool Estimaied cost Activity ProductA Product B TotalActivity
Cutting $ 80,000 200 800 1,000
Sanding 360,000 600 5,400 6,000
Painting 60,000 1000 500 1,500
The following information is also available:
(In Dollars) A B
Sales price per unit $100.00 150.00
Direct material per unit 20.00 30.00
Direct labor per unit 10.00 15.00
Compute the profit margin for Products A and B using activity-based costing.
Explanation / Answer
Product A
Total Cutting Cost = 200/1000 x 80000 = $16000
Total Sanding Cost = 600/6000 x 360000 = $36000
Total Painting Cost = 1000/1500 x 60000 = $40000
Total overhead cost = 16000 + 36000 + 40000 = $92000
Overhead Cost per unit = 92000 / 18000 = $5.11
Total Product Cost = 20 + 10 + 5.11 = $35.11
Profit margin = 100 - 35.11 = $64.89 per unit
Product B
Total Cutting Cost = 800/1000 x 80000 = $64000
Total Sanding Cost = 5400/6000 x 360000 = $324000
Total Painting Cost = 500/1500 x 60000 = $20000
Total overhead cost = 64000 + 324000 + 20000 = $408000
Overhead Cost per unit = 408000 / 32000 = $12.75
Total product cost = 30 + 15 + 12.75 = $57.75
Profit margin = 150 - 57.75 = $92.25 per unit
Hope this helps!
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