Ellis Company Ellis Company uses activity-based costing.The company produces two products: IPods and MP3 players.The annual production and sales volume of IPods is 8,000 units and of MP3 players is 6,000 units.There are three activity cost pools with the following expected activities and estimated total costs:

Activity Cost Pool Estimated Cost Expected Activity IPods Expected Activity MP3 players Total

Activity 1 $20,000 100 400 500

Activity 2 $37,000 800 200 1,000

Activity 3 $91,200 800 3,000 3,800

Refer to Ellis Company.Using ABC,the cost per unit of IPods is approximately: A)$ 2.40 B)$ 3.90 C)$ 6.60 D)$10.59

Question

Ellis Company
Ellis Company uses activity-based costing.The company produces two products: IPods and MP3 players.The annual production and sales volume of IPods is 8,000 units and of MP3 players is 6,000 units.There are three activity cost pools with the following expected activities and estimated total costs:

Activity Cost Pool	Estimated Cost	Expected Activity IPods	Expected Activity MP3 players	Total
Activity 1	$20,000	100	400	500
Activity 2	$37,000	800	200	1,000
Activity 3	$91,200	800	3,000	3,800

Refer to Ellis Company.Using ABC,the cost per unit of IPods is approximately: A)$ 2.40 B)$ 3.90 C)$ 6.60 D)$10.59

Quizplus · Accepted Answer

To calculate the cost per unit of IPods, we need to allocate the total expected cost of each activity cost pool to the units produced.

Activity 1: Set up costs 
Expected activity: 20 setups 
Estimated total cost: $60,000 
Cost per setup: $3,000

Activity 2: Machine hours 
Expected activity: 15,000 machine hours 
Estimated total cost: $90,000 
Cost per machine hour: $6

Activity 3: Product level costs 
Expected activity: 14,000 units 
Estimated total cost: $210,000 
Cost per unit: $15

Now, we can calculate the total cost per unit of IPods:

Total cost per unit = (20 setups x $3,000 per setup) + (5,000 machine hours x $6 per machine hour) + (8,000 units / 14,000 units x $210,000)  
Total cost per unit = $60 + $30,000 + $120,000 
Total cost per unit = $150 per unit

Therefore, the cost per unit of IPods using ABC is approximately $6.60.

Ellis Company Ellis Company Uses Activity-Based Costing.The Company Produces Two Products: IPods