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Macpherson Limited produces two products: Standard and Deluxe. The company uses an activity-based costing system. Macpherson...

Macpherson Limited produces two products: Standard and Deluxe. The company uses an activity-based costing system. Macpherson produces 8,000 units of Standard and 2,000 units of Deluxe. The company uses two activity cost pools, with estimated total cost and activity as follows:

Expected Activity

Activity Cost Pool

Estimated Cost

Standard

Deluxe

#1

$12,000

500

250

#2

$24,000

400

1,200

        What is the cost per unit of Macpherson under activity-based costing?

a.

$15.00
b.

$11.00
c.

$16.00
d.

$1.75

What is the main reason for generating new information provided by activity-based costing?

a.

calculate variances.
b.

help managers make better decisions.
c.

reduce product costs.
d.

reduce total overhead costs.

Solutions

Expert Solution

Q1.
Activity rate
Activity    Estimated Cost Est. Drivers Activity rate
#1 12,000 750 16
#2 24,000 1600 15
Activity cost allocated:
Activity    Rate Standard Deluxe
Driver OH cost Driver OH cost
#1 16 500 8000 250 4000
#2 15 400 6000 1200 18000
Total Overheads 14000 22000
Divide: units 8000 2000
Cost per unit 1.75 11
Cost per unit of Standard: 1.75
Cost per unit of Deluxe 11
Q2.
Answer is b. help managers make better decisions

ekkarill92 answered 2 years ago
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