Serva, Inc., manufactures and sells two products: Product R4 and Product N4. Dat

Question

Serva, Inc., manufactures and sells two products: Product R4 and Product N4. Data concerning the expected production of each product and the expected total direct labor-hours (DLHs) required to produce that output appear below:

The direct labor rate is $24.70 per DLH. The direct materials cost per unit for each product is given below:

The company is considering adopting an activity-based costing system with the following activity cost pools, activity measures, and expected activity:

The overhead applied to each unit of Product N4 under activity-based costing is closest to:

Question options:

$216.66 per unit

$197.39 per unit

$301.08 per unit

$125.43 per unit

Expected Production Direct Labor-Hours Per Unit Total Direct Labor-Hours Product R4 800 6.0 4,800 Product N4 300 3.0     900 Total direct labor-hours 5,700

Explanation / Answer

Calculation of Total Overhead Costs of Product N4 under Activity Based Costing:

Expected Production of Product N4 = 300

Total Overhead Cost = $90325

Overhead Cost per unit = Total Overhead Cost / Production Units

= $90325 / 300

= $301.0833

Correct Answer is $301.08 per unit

Activity Cost Pool Activity Measures Total Activity Expected Activity Cost Cost of Product N4 Labor related DLHs 5700 900 $86811 $13707 Machine Setups Setups 1000 600 $29000 $17400 General Factory MHs 6000 2900 $122520 $59218 $90325

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