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Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:Activity Cost Driver Amount M XYProduction setups Number of setups $ 72,000 12 28Material handling Number of parts 50,000 54 36Packaging costs Number of units 355,000 108,000 72,000    $ 477,000    What is the total overhead per unit allocated to Product XY using activity-based costing (ABC)?Note: Do not round intermediate calculations; round your final answer to the nearest cent.Multiple Choice$2.95$2.65$1.69$2.45

Question

Allure Company manufactures and distributes two products, M and XY. Overhead costs are currently allocated using the number of units produced as the allocation base. The controller has recommended changing to an activity-based costing (ABC) system. She has collected the following information:Activity Cost Driver Amount M XYProduction setups Number of setups 72,0001228MaterialhandlingNumberofparts50,0005436PackagingcostsNumberofunits355,000108,00072,000   72,000 12 28Material handling Number of parts 50,000 54 36Packaging costs Number of units 355,000 108,000 72,000    477,000    What is the total overhead per unit allocated to Product XY using activity-based costing (ABC)?Note: Do not round intermediate calculations; round your final answer to the nearest cent.Multiple Choice2.952.952.651.691.692.45

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Solution

To calculate the total overhead per unit allocated to Product XY using activity-based costing (ABC), we need to first calculate the overhead cost for each activity and then divide it by the number of units of Product XY.

  1. Calculate the overhead cost for each activity:

    • Production setups: 72,000isdividedbythetotalnumberofsetups(12forMand28forXY),whichis40.Thisgivesusacostpersetupof72,000 is divided by the total number of setups (12 for M and 28 for XY), which is 40. This gives us a cost per setup of 1,800. For Product XY, this would be 1,800∗28=1,800 * 28 = 50,400.

    • Material handling: 50,000isdividedbythetotalnumberofparts(54forMand36forXY),whichis90.Thisgivesusacostperpartof50,000 is divided by the total number of parts (54 for M and 36 for XY), which is 90. This gives us a cost per part of 555.56. For Product XY, this would be 555.56∗36=555.56 * 36 = 20,000.

    • Packaging costs: 355,000isdividedbythetotalnumberofunits(108,000forMand72,000forXY),whichis180,000.Thisgivesusacostperunitof355,000 is divided by the total number of units (108,000 for M and 72,000 for XY), which is 180,000. This gives us a cost per unit of 1.97. For Product XY, this would be 1.97∗72,000=1.97 * 72,000 = 141,840.

  2. Add up the overhead costs for Product XY: 50,400(setups)+50,400 (setups) + 20,000 (material handling) + 141,840(packaging)=141,840 (packaging) = 212,240.

  3. Divide the total overhead cost by the number of units of Product XY to get the overhead per unit: 212,240/72,000=212,240 / 72,000 = 2.95.

So, the total overhead per unit allocated to Product XY using activity-based costing (ABC) is $2.95.

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Similar Questions

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Activity-based costing (ABC) is a two-stage cost allocation system that first assigns costs to activities and then to products based on each product’s use of the activities.Group startsTrue or FalseTrue, unselectedFalse, unselected

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