Question

Kozlov Corporation has provided the following data from its activity-based costing system:

Activity Cost Pool	Total Cost					Total Activity
Assembly		$	1,022,580			78,000	machine hours
Processing orders		$	104,650			2,300	orders
Inspection		$	160,312			2,320	inspection hours

The company makes 440 units of product A21W a year, requiring a total of 820 machine-hours, 50 orders, and 20 inspection-hours per year. The product's direct materials cost is $35.32 per unit and its direct labor cost is $29.32 per unit. According to the activity-based costing system, the average cost of product A21W is closest to:

$97.38 per unit.

$68.14 per unit.

$64.64 per unit.

$95.76 per unit.

$52.25 per unit.

Answer 1

The answer is $97.38 per unit.

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Computation

Average cost of product
Direct material cost per unit	$35.32
Direct labor cost per unit	$29.32
Overhead cost per unit      [Refer working note 2]	$32.74
Total cost per Unit	$97.38

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Working note 1 - Calculation of activity rates
Activity cost pool	Estimated cost	Estimated activity		Activity rate                                              (Estimated Cost ÷ Estimated activity)
Assembly	$1,022,580	78,000	machine hours	$13.11
Processing orders	$104,650	2,300	orders	$45.50
Inspection	$160,312	2,320	inspection hours	$69.10

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Working note 2 - Allocation of overhead to the prodcut
Activity cost pool	Activity Rate [Refer working note 1]	Activity usage		Activity Cost (Activity Rate x Activity Usage)
Assembly	$13.11	820	machine hours	$10,750.20
Processing orders	$45.50	50	orders	$2,275.00
Inspection	$69.10	20	inspection hours	$1,382.00
Total overhead cost allocated				$14,407.20
Number of units produced				440
Overhead cost per unit produced   [Total overhead cost allocated ÷ Number of units produced]				$32.74