2. A company has two products: A and B. It uses activity-based costing and has p
ID: 2427735 • Letter: 2
Question
2. A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted costs and activities. Activity Cost Pool Activity 1 Activity 2 Activity 3 Budgeted Overhead Cost $220,000 $250,000 $340,000 Product A 500 2100 1400 Product B 1700 1200 6800 Total 2200 3300 8200 Annual production and sales level of Product A is 160,500 units, and the annual production and sales level of Product B is 250,000 units. 1. Compute the company's activity rates under activity-based costing for each of the three activities. Activity 1 Rate is Activity 2 Rate is $- Activity 3 Rate is S Compute the total overhead cost for each Product: Total Overhead Cost for Product A is S Total Overhead Cost for Product B is 2. Compute overhead cost per unit for each Product: Overhead Cost per unit for Product A is Overhead Cost per unit for Product B is 3. $- (ver. # 117Explanation / Answer
1. Activity 1 rate is $100 ($220,000 / 2200)
Activity 2 rate is $75.75 ($250,000 / 3300)
Activity 3 rate is $41.47 ($340,000 / 8200)
2 Total overhead cost of Product A is $267,139 (($220,000 * 500 / 2200) + $250,000 * 2100 / 3300 + $340,000 * 1400 / 8200))
Total overhead cost of product B is $542,860 (( $220,000 * 1700 / 2200) + $250,000 * 1200 / 3300 + $340,000 * 6800 / 8200))
3. Overhead cost per unit of product A is $1.66 ($267,139 / 160,500)
Overhead cost per unit of product B is $2.17 ($542,680 / 250,000)
Question 3:
Machine hour expected in Department 2 are 25,878
Total machine hours in department 1 is 63000, therefore per hour cost is 250000 / 63000 = 3.96
Total machine hours in department 2 is 12000+x, per hour cost is 150000 / (12000+x). Equate this equation with 3.96 which means 150000 / (12000 + x) = 3.96 and x = 25,878
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