Question

Company uses activity-based costing to determine product cost. The accounting department identified the following overhead activities, costs, and activity drivers for the coming year. Activity Estimated cost Activity driver Activity capacity Setting up equipment $120,000 Number of setups 300 Ordering materials 90,000 Number of orders 9,000 Maintaining machines 210,000 Machine hours 21,000 Total overhead $420,000 The following actual results were collected for the production of Model X and Model Y during the year. Model X Model Y Units produced 8,000 4,000 Prime costs $160,000 $100,000 Number of setups 200 100 Number of orders 3,000 6,000 Machine hours 12,000 9,000 Determine the unit cost of Model Y. Note: Give your answer using dollar signs, commas, and decimal points (cents). Example: $123.45  

Answer 1

Ans.	*Calculations for Activity rate :
	Activity cost pool	Activity cost (a)	Total activity (b)	Activity Rate (a/b)
	Setting up equipment	$120,000	300	$400.00	per setup
	Ordering materials	$90,000	9000	$10.00	per order
	Maintaining machines	$210,000	21000	$10.00	per machine hour
	*Calculations for Overhead assigned to Model Y :
	Activity cost pool	Activity rate (a)	Actual activity of Model Y (b)	Overhead assigned (a*b)
	Setting up equipment	$400	100	$40,000
	Ordering materials	$10	6000	$60,000
	Maintaining machines	$10	9000	$90,000
	Total overhead assigned			$190,000
	*Calculations for Total manufacturing cost of Model Y :
	Particulars	Model Y
	Prime costs	$100,000
	Overhead assigned	$190,000
	Total manufacturing cost	$290,000
	*Calculations for Unit cost of Model Y :
	Unit cost = Total manufacturing cost / Units produced
	$290,000 / 4,000
	$72.50