R4 Friends Co. (R4F) uses activity-based costing in their manufacturing process.
ID: 2534822 • Letter: R
Question
R4 Friends Co. (R4F) uses activity-based costing in their manufacturing process. The company produces two products, ABC and XYZ. R4F has provided their costing department the following information from this year’s budget relating to the production of these two products:
ABC
XYZ
Units to be produced
40,000
60,000
Machine-hours expected
1,000
2,000
Direct labor-hours expected
2,000
3,000
Materials handling (number of moves)
600
700
Machine setups (number of setups)
200
150
The following costs are expected to be incurred throughout the year, and are related to the cost drivers being measured:
Direct Labor Wages
$500,000
Materials Handling
40,000
Labor-related overhead
420,000
Machine setups
70,000
NOTE: Round all per-unit costs to nearest cent.
What is the total expected overhead per unit allocated to product XYZ?
ABC
XYZ
Units to be produced
40,000
60,000
Machine-hours expected
1,000
2,000
Direct labor-hours expected
2,000
3,000
Materials handling (number of moves)
600
700
Machine setups (number of setups)
200
150
Explanation / Answer
Answer : Total expected overhead per unit allocated to product XYZ
Direct Labor Wages ( $ 500,000 / 5000 X 3000) = $ 300,000
Material Handling ( $ 40,000 / 1300 X 700) = $21,538
Labor Related Overhead ( $420,000 / 5000 X 3000) = $252,000
Machine Setup ( $ 70,000 / 350 X 150) = $30,000
Total Overhead Cost = $ 603,538
Overhead per unit = $603,538 / 60000
= $ 10
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