Question

Paparo Corporation has provided the following data from its activity-based costing system: Activity Cost Pool Total Cost Total Activity Assembly $ 794,300 47,000 machine-hours Processing orders $ 61,280 1,600 orders Inspection $ 109,681 1,430 inspection-hours Data concerning the company's product Q79Y appear below: Annual unit production and sales 500 Annual machine-hours 1,130 Annual number of orders 115 Annual inspection hours 20 Direct materials cost $ 42.00 per unit Direct labor cost $ 41.31 per unit According to the activity-based costing system, the average cost of product Q79Y is closest to:

Answer 1

Activity Cost Pool	Total Cost (i)	Total Activity (ii)	Activity rate (iii) = (i) x (ii)	Activity used by product Q79Y (iv)	Cost allocated to product Q79Y (iii) x (iv)
Assembly	$ 794,300	47,000 machine-hours	$16.9 per machine hour	1,130 machine hours	$19,097
Processing orders	$ 61,280	1,600 orders	$38.3 per order	115 orders	$4,404.5
Inspection	$ 109,681	1,430 inspection-hours	$76.7 per inspection hour	20 inspection hours	$1,534
Total					$25,035.5

Direct materials cost = $42.00 per unit

Direct labor cost = $41.31 per unit

Annual unit production and sales = 500 units

Overhead per unit = Total overheads applied/Annual unit production

= 25,035.5/500

= $50.07

Average cost of product Q79Y = Direct materials cost per unit + Direct labor cost per unit + Overhead per unit

= 42 + 41.31 + 50.07

= $133.38

According to the activity-based costing system, the average cost of product Q79Y is closest to: $133.38