Question

7-4 Dace company manufactures two products, Product F and Product G. The company to produce and sell 3,200 units of Product F and 2,100 units of Product G during the year. Data relating to the company’s three activity cost pools are given below for the year:

Activity Cost Pool	Total Cost	Product F	Product G	Totals
Machine setups..	$7020	130 setups	130 setups	260 setups
Purchase Orders.	$69,700	520 orders	1,180 orders	1,700 orders
General Factory..	$101,160	3,520 hours	2,100 hours	5,620 hours

A. Calculate activity rates for each activity cost pool using activity-based costing:

b. Using the activity-based costing approach, determine the overhead cost per unit for each product.

Answer 1

1.Activity rates for each activity cost pool using activity-based costing

Activity rates = Total Costs / Total Activity

Machine setups = $7020 / 260 setups = $27 per setups

Purchase Orders. = $69,700 / 1,700 orders = $41 per order

General Factory = $101,160 / 5,620 hours = $18 per hour

2.Overhead cost per unit for each product.

Overhead cost per unit = Total Overhead cost / Number of Units

Product F

= [ (130 x $27) + (520 x $41) + (3520 x $18) ] / 3,200 Units

= $27.56 per unit

Product G

= [ (130 x $27) + (1180 x $41) + (2100 x $18) ] / 2,100 Units

= $ 42.71 per unit