Question

Daba Company manufactures two products, Product F and Product G. The company expects to produce and sell 2,700 units of Product F and 3,100 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity cost pools are given below for the current year:

Estimated		Expected Activity
Activity Cost Pool	Overhead Cost		Product F		Product G		Total

Machine setups	$	15,800	120	setups	80	setups	200	setups
Purchase orders	$	103,400	770	orders	1,430	orders	2,200	orders
Order size	$	58,560	1,270	hours	1,170	hours	2,440	hours

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

Answer 1

Step-1, Overhead rates for each activity

Overhead Rate = Total Overhead Cost / Total Expected Activity

Machine setups = $79 per setup [$15,800 / 200 setups]

Purchase orders = $47 per Order [$103,400 / 2,200 Orders]

Order size = $24 per Hour [$58,560 / 2,440 Hours]

Step-2, Total Overhead cost assigned to Product F & Product G

Total Overhead cost assigned to Product F

Total Overhead cost = [120 x $79] + [770 x $47] + [1,270 x $24]

= $9,480 + $36,190 + $30,480

= $76,150

Total Overhead cost assigned to Product G

Total Overhead cost = [80 x $79] + [1,430 x $47] + [1,170 x $24]

= $6,320 + $67,210 + $28,080

= $101,610

Step-3, Overhead cost per unit for each product

Overhead cost per unit for each product = Total Overhead cost assigned / Number of units produced

Overhead cost per unit – PRODUCT F

Overhead cost per unit = Total Overhead cost assigned / Number of units produced

= $76,150 / 2,700 Units

= $28.20 per unit

Overhead cost per unit – PRODUCT G

Overhead cost per unit = Total Overhead cost assigned / Number of units produced

= $101,610 / 3,100 Units

= $32.78 per unit

FINAL ANSWER

Overhead cost per unit – PRODUCT F = $28.20 per unit

Overhead cost per unit – PRODUCT G = $32.78 per unit