Activity Based Costing Question No.5 (with answer)

A company manufactures two products, X and Y, using the same equipment and similar processes. Data for the production of these items in one period is shown below:

Data:

Quantity produced per period	X	Y
Material cost per unit	20,000	10,000
Direct labor hours per unit		$20
Machine hours per unit		½
Set-ups per period		4
Orders handled per period		70
Cost per direct labor hour		160

Overhead costs			$
Relating to machine activity			300,00
Relating to set-ups of production runs			50,000
Relating to handling of orders			70,000

Question: Using activity-based costing, what is the full production cost per unit X?

Answer:

		$	$
a	Machine hour driven costs	300,000/80,000 m/c hr	3.75
b	Set-up driven costs	50,000/100 set ups	500 per set up
c	Order driven costs	70,000/200 orders	350 per order

Overhead costs of X	$
Machine driven costs(40,000x$3.75)	150,000
Set-ups(30 x$500)	15,000
Orders handled(40x$350)	14,000
	179,000

Units produced	20,000
Overhead cost per unit	$8.95
Full cost per unit ($5+$4+$8.95)	$17.95

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December 5, 2009 Tags: Activity based costing questions, Activity based costing questions and answers Posted in: Activity-Based Costing

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